<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______
FORM 10-K
(MARK ONE)
X Annual Report Pursuant to Section 13 or 15(d) of the
- - ------- Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended January 31, 1994.
OR
Transition Report Pursuant to Section 13 or 15(d) of
- - ------- the Securities Exchange Act of 1934 (No Fee Required)
For the Transition Period From_____________to___________.
Commission file number 0-12201.
AGENCY RENT-A-CAR, INC.
(Exact name of registrant as specified in its charter)
Delaware 34-1050582
(State of incorporation) (I.R.S. Employer Identification No.)
30000 Aurora Road, Solon, Ohio 44139
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (216) 349-1000.
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
- - ------------------- ---------------------
Common Stock, par value $.05 per share.............NASDAQ National Market System
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements
for the past 90 days. Yes x No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K ( x ).
As of March 31, 1994, 25,741,656 shares of Common Stock of Agency Rent-A-Car,
Inc. were outstanding.
Aggregate market value of the registrant's Common Stock held by nonaffiliates
at March 31, 1994, was approximately $145,987,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on June 22, 1994, are incorporated by reference into Part III.
<PAGE> 2
TABLE OF CONTENTS
Part I Page
- - ------ ----
Item 1. Business. . . . . . . . . . . . . . . . . . . . 1
2. Properties. . . . . . . . . . . . . . . . . . . 8
3. Legal Proceedings . . . . . . . . . . . . . . . 8
4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . 8
Part II
- - -------
Item 5. Market for the Registrant's Common
Stock and Related Stockholder Matters . . . . 9
6. Selected Financial Data . . . . . . . . . . . . 10
7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations . . . . . . . . . . 11
8. Financial Statements and Supplementary Data . . 16
9. Disagreements on Accounting and
Financial Disclosure . . . . . . . . . . . . .33
Part III
- - --------
Item 10. Directors and Executive Officers of
the Registrant. . . . . . . . . . . . . . . . 34
11. Executive Compensation. . . . . . . . . . . . . 37
12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . 37
13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . .37
Part IV
- - -------
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K . . . . . . . . . . .38
<PAGE> 3
PART I
------
Item 1. Business
- - -----------------
Agency Rent-A-Car, Inc. (herein referred to as the "Company") began
operations in 1969 and was incorporated in Delaware in 1971. The Company
operates in two principal industry segments, rental operations and financial
services. The rental operations segment includes both automobile rentals and
dealership operations, which sell automobiles retired from the rental fleet.
The financial services segment provides retail automobile financing.
This past year was a pivotal year for the Company. In fiscal 1994,
the rental operations exited certain high risk and unprofitable markets. As a
result, approximately 200 offices were closed or merged and the average fleet
decreased by 8,000 cars to 30,000. As of January 31, 1994, there were 24,000
vehicles in the rental fleet. The Company intends to continue the process of
evaluating its office network throughout fiscal 1995 and make additional
changes as required to improve its profitability.
The Company has successfully redirected energies and resources into
its financial services subsidiary, National Auto Credit (NAC). NAC operates as
an alternative finance company for automobile dealerships throughout the United
States. NAC has established a receivables portfolio exceeding $125 million as
of April 1994 and plans continued growth throughout fiscal 1995.
Rental Operations
- - -----------------
General
The Company conducts rental operations at approximately 450 locations
in 46 states and in the provinces of Ontario and Quebec, Canada. The primary
business of rental operations is the rental of automobiles on a short-term
basis, principally to the insurance replacement market. This market consists
of persons whose automobiles are out of service due to accident, theft, damage
or major repair. Automobile insurance companies generally provide
reimbursement for a replacement automobile to their insured and to third party
claimants. Generally, an insured or third party claimant who has lost the use
of his personal vehicle is referred to the Company by the insurance adjuster or
agent handling his claim. The Company has no contractual relationship with any
insurance company to provide replacement vehicles. Each adjuster or agent uses
his discretion when recommending replacement automobile rental services.
Additional referral sources include body shops and auto dealerships. The
Company also rents automobiles to business and vacation travelers on a
short-term basis, which accounts for sixteen percent of the Company's business.
The Company rents vehicles through three divisions under the names of Agency
Rent-A-Car, Altra Auto Rental and Automate Auto Rental.
The automobile rental industry is divided into two categories:
business and vacation rentals, and insurance replacement rentals. The business
and vacation automobile rental companies charge
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substantially higher rates than insurance replacement rental companies. These
companies generally operate out of more costly 24 hour-a-day airport or city
locations and offer a wide variety of immediately available vehicles. In
contrast, insurance replacement rental companies usually operate from less
costly suburban locations and offer a limited selection of standard,
intermediate-size automobiles, which are ordinarily used as family car
replacements for routine, low-mileage, local travel. Additionally, the
utilization rate of the insurance replacement industry is believed to be
considerably higher than that of the business and vacation rental industry.
Competition
The Company's principal competition consists of two national and
numerous small local companies engaged directly in the insurance replacement
rental market. Competition in the replacement market is comprised of three
primary factors: customer service, rental rates, and geographic location. The
level of a company's success is dependent upon its ability to compete in these
areas.
Customer service is the most important of these competitive factors.
For the convenience of the renter and at no extra charge, the Company will
deliver a rental vehicle to or pick up from a customer's home or place of
business. The Company also provides a diary service and rental information to
the insurance agent or adjuster regarding the status of repairs to their
insured or claimant's vehicle, thus saving the adjuster time and expense.
Unique to the industry is the Company's Three Point Service Guarantee which
guarantees: 1) the renter will be provided a clean, well-maintained car, 2)
the car will be delivered on time, and 3) total customer satisfaction. The
Company believes it is the industry leader in customer service.
Rental rate is the second competitive factor. The Company believes
that it is able to rent cars more economically than most companies for several
reasons. First, the Company acquires its automobiles at favorable prices by
volume purchases of similarly equipped vehicles. Second, the Company is able
to control overhead through a computerized system of centralized and automated
controls. Third, the Company realizes further savings through its
self-insurance program, which yields an effective annual insurance cost
substantially below annual premium rates charged by independent companies.
Lastly, the Company realizes a benefit by being able to finance its vehicle
purchases through its A-1/P-1/Duff-1 rated commercial paper program.
Geographic location is the third competitive factor in the insurance
replacement rental business. The insurance replacement rental customer equates
convenience with a close-by location. The numerous suburban and neighborhood
locations provide Agency with a clear competitive advantage.
Pricing
The Company's rental rates differ between insurance replacement rentals
and business and vacation rentals. Most insurance
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replacement rental rates currently range from $20 to $26 per day, and the
business and vacation rental rate averages $30 per day. There is also a $5 to
$10 refueling fee assessed on insurance rentals in some states. No mileage
charge is imposed on insurance replacement rentals; however, if a rental
vehicle is returned to a different rental office, there may be a drop-off
charge. The Company adjusts its rental rates depending on competitive market
conditions and the region's operating costs and expenses.
Renters or their insurance companies are liable for any physical damage
to the rental vehicle, except as limited in the state of Illinois. However,
where not restricted by state law, the Company offers optional "Road Hazard
Protection" coverage to its customers who wish to reduce their potential
liability. This coverage is offered at a fee of $5 to $10 per day. In many
cases, a Company vehicle is covered under the "temporary substitute" provision
of the renter's own insurance policy while the vehicle is in the renter's
possession. Accordingly, the renter's only liability is for costs equal to the
deductible portion of his or her policy.
Marketing
The Company advertises in Yellow Page directories in all of its markets.
The Company also participates in and exhibits displays at most major insurance
conventions and other trade shows. The Company employs a team sales approach
whereby every employee is sales oriented and responsible for soliciting
business from claims centers, insurance agents, adjusters, auto body shops,
automobile dealerships and travel agents. To support Agency's relationship
with the collision/mechanical repair industry, the Company employs its
Commissionable Agent Program, which provides body shops and dealerships a
commission on every paid rental contract referral. The Company also utilizes
direct mail campaigns.
Purchasing and Fleet Administration
The Company purchases primarily standard, four-door, intermediate-size
automobiles suited to the general needs of most people requiring an insurance
replacement vehicle. The Company offers a selection of General Motors, Ford,
Chrysler, Toyota and Nissan products. The Company also maintains a fleet of
light pick-up trucks with tow dollies for the delivery and pickup of rental
vehicles. Purchase arrangements are negotiated with automobile manufacturers
each model year, and purchase decisions are made on the basis of price,
maintenance, resale value, financing, and fleet mix.
Considerable attention is given to the maintenance of vehicles.
Maintenance histories of all automobiles are kept on the Company's computer
system. Maintenance and repairs on all vehicles are performed by various
national automotive repair chains, as well as by independent garages and auto
body shops. Maintenance spending is controlled centrally by a team of experts
who establish strict vehicle repair cost and service standards in each region
of the country.
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The Company currently retires its rental vehicles from the fleet after
approximately 28 months of service. In contrast to the fleet vehicles owned by
the business and vacation rental companies, the Company's vehicles incur lower
mileage per rental since its vehicles generally replace family automobiles used
for routine local travel as opposed to high-mileage business or vacation
travel.
Disposition of the Company's retired vehicles is centrally controlled by
vehicle sales professionals who determine the most efficient and profitable
means of disposal, either through National Auto Credit (NAC) member dealers,
wholesale or auction. The Company currently operates nine "Program Car Prep
Centers" which oversee the preparation and detailing of retired vehicles for
sale through NAC member dealers. NAC has provided Agency with the most
profitable method to date of fleet disposal, and currently 75% of retired
vehicles are sold through NAC member dealers.
Field Operations
The typical Company rental office is approximately 600 square feet in
size and is generally located in a professional office building or small
shopping center. Rental offices do not require a large parking area as the
Company's vehicle utilization rate generally approximates 90%. Office
locations are designed to provide a centralized point of delivery within an
area of operations. The rental delivery area can extend up to 25 miles
depending on the particular market. Rental vehicles are delivered using a
light pick-up truck and a tow dolly. This enables one employee to deliver or
pick up an automobile unassisted.
Control over the network of nationwide offices is maintained by
management through a computerized system of financial controls, by fax
transmissions and daily telephone contact between field management and
corporate headquarters. The Company maintains a central computerized billing
and collection system. In addition, the Company utilizes credit card
point-of-sale terminals in all its offices.
The Company maintains strict controls over operating expenses through a
computerized monitoring system. Each rental office receives a monthly profit
and loss statement upon which employee bonus compensation is based.
The Company conducts most of its operations between the hours of 8:00
a.m. and 5:30 p.m., with the exception of Fridays when rental offices are open
until 6:00 p.m., and Saturdays when rental offices are open between 9:00 a.m.
and 12:00 noon. The Company's rental offices are closed on Sundays and major
holidays.
Insurance and Claims Administration
The Company maintains a staff of liability, physical damage and
subrogation adjusters centrally located at Corporate headquarters. Their
efforts are augmented by staff attorneys and an established network of
independent claims adjusters and law firms located throughout the United States
and Canada. This insurance and claims
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team, together with cooperation from the Company's field staff, is responsible
for the overall quality and success of the investigation, reserving and
litigation and/or settlement of claims against the Company.
Financial Services
- - ------------------
General
Agency Rent-A-Car's wholly-owned financial services subsidiary, National
Auto Credit, Inc. (NAC), began operations in 1992. NAC is a financial services
company specializing in providing funding, receivables management, collection,
sales training and other services to automobile dealers. The primary business
of NAC is to assist member dealers in providing financing to their customers,
many of which have limited access to financing through traditional sources of
consumer credit. As of April 1994, NAC conducted business with over 1,000
dealerships, in 39 states, and has built an installment receivable portfolio of
over $125 million.
NAC enables member dealers to capture the sale that may have been lost
as a result of unavailable credit. The Company charges qualified dealers a
$2,500 fee for enrollment into the NAC Dealer Acceptance Program, which
provides a source of funds for the qualified buyer, as well as a means of
positive cash flow to the dealer on each and every sale. Annually thereafter,
a $500 maintenance fee is assessed. A prospective customer who is interested
in obtaining financing through National Auto Credit and its member dealers is
required to complete a financing application in addition to a retail
installment contract.
The credit application is reviewed by seasoned credit underwriters who,
with the assistance of a risk rating system methodology, categorize the
borrower using traditional credit classifications of "A" through "D". Upon
receiving credit approval and the receipt of all requisite paperwork, the NAC
dealer is generally provided with a minimum cash advance, net of a $60
transaction fee, equal to 50% of the amount financed or the National Automobile
Dealers Association (NADA) wholesale value of the vehicle, whichever is less.
The advance percentages increase proportionately as the credit risk of the
customer improves, but the advance never exceeds the wholesale value of the
car. The amount by which the customer installment note exceeds the advance is
recorded as a dealer holdback. Risk of loss to NAC is mitigated by the
existence of the dealer holdback, as well as NAC's obtaining from the dealer
the security interest in every vehicle financed.
The installment notes generally have initial terms ranging from 12 to 42
months with an average initial term of 30 months. For the management and
collection of the outstanding debt, NAC receives a 20% finance charge on all
cash receipts related to the installment notes. The balance remaining (80%) is
next applied against the dealer's advance. Once all advances have been repaid,
the dealer receives monthly payments in accordance with the terms of the dealer
agreement. The dealer is provided a monthly statement which details all
transactions on the dealer's contracts.
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Competition
It is estimated that over $100 billion in used car sales was financed in
1993 nationwide with as many as 50% of these buyers not qualifying for
traditional financing with banks, credit unions or the auto manufacturers
themselves. This market is the primary focus of NAC.
NAC's direct competition consists of several national and regional
automobile finance companies and other consumer finance businesses. The
Company does not consider itself in direct competition with commercial banks,
thrifts and automobile manufacturers' financing divisions since they do not
typically finance vehicle purchases for the nonprime credit customer. NAC
estimates that less than 5% of America's auto dealers are currently being
serviced by NAC or its competitors.
Management believes the most important competitive factors in this
industry are service to dealers and superior collection performance, and that
the Company competes favorably in both regards. The NAC Dealer Acceptance
Program includes a number of benefits that has made NAC a full-service
financial partner with its member dealers. These exclusive benefits provide
several additional revenue centers for both the member dealer and NAC as
follows: inventory with no up front costs to the dealer, aftermarket products
including auto warranty and credit life and health insurance, floor plan
financing at prime rate, advertising assistance and ongoing training at no
cost. To better serve its members and provide enhanced support on a local
level, NAC has established regional hubs in Dallas, Baltimore, Columbus and San
Francisco, with plans to open additional regional offices in fiscal 1995.
Marketing
NAC is committed to providing all member dealers continuing education
about the NAC alternative financing product and the privileges of membership.
NAC sponsors in-depth, interactive training workshops on a regular basis as a
support to the field sales staff. These seminars help keep product knowledge
updated and consistent; the more a dealer knows about the revenue-producing
benefits of NAC, the more he will utilize the program. Thus, the ultimate
result will be an increase in the number of loans. In the aggressive pursuit
of adding new dealers to the roster, NAC sponsors enrollment seminars across
the country. National direct marketing campaigns, trade show involvement and
print advertising also work toward the goal of increased enrollment. In a
continuing effort to distinguish National Auto Credit as a service-intensive
alternative financing source, management expects that new products and
enhancements will be regularly introduced.
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Operations
The Company accepts into the Dealer Acceptance Program only those
dealers who meet specific criteria which include proper licensing and insurance
coverage, favorable trade references, and demonstrated financial stability.
The regional offices in Dallas, Baltimore, Columbus and San Francisco are
responsible for this dealer approval process and the execution of the dealer
agreement. The loan application review and credit grading process is also
handled at the regional offices through fax and phone communications with the
dealers. Payment requests for new loans are submitted by branches to NAC
corporate headquarters for immediate disbursement.
The loan files including the titles are maintained at the regional
offices. Customer inquiries and service, including payoff information
requests, are handled by the regional branches. Coupon payment books are sent
to each customer and receipts are directed to retail lockboxes in Denver,
Colorado and Richmond, Virginia.
NAC employs experienced collection personnel, who with the help of an
advanced computer system, follow up with customers whose contracts become more
than five days past due. The Company's collection policy, while aggressive,
provides the opportunity for a customer to catch-up past due balances and
retain the vehicle. In those cases where repossessions are necessary, the
Company does pursue the collection of any deficiencies. The productivity of
the collections department will be greatly enhanced by the recent acquisition
and implementation of a sophisticated call management system including a
predictive dialing feature.
The installment notes receivable portfolio is reviewed regularly to
ensure that the allowance for loan losses is maintained at a level considered
adequate to cover potential losses. Loans are charged-off on a loan-by-loan
basis generally within 30 days of the sale of the repossessed collateral or
when no material payment has been received for one year, as applicable.
Principal balances are charged-off against the related dealer holdback first,
and then against the allowance for loan losses, as necessary.
Corporate
- - ---------
The corporate staff includes executive management and various support
functions, which are centralized at the Company's corporate headquarters
located in Solon, Ohio, a southeast suburb of Cleveland. These functions
include accounting, payroll, benefits, legal, management information systems,
tax and treasury.
Employees
- - ---------
The Company employs a total of 1,600 people, 1,400 of whom work in the
rental operations group. The financial services group has about 100 employees,
and about 100 people are involved in the corporate functions noted above,
providing support primarily to rental operations. None of the employees are
covered by a collective bargaining agreement, and the Company believes it has
good relations with its employees.
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Segment Reporting Information
- - -----------------------------
Financial information about the Company's industry segments is provided in Note
M to the Company's consolidated financial statements on page 30 of this Form
10-K which is herein incorporated by reference.
Item 2. Properties
- - ------- ----------
The Company's executive offices are located in two four-story, 55,000
square feet office buildings owned by the Company in Solon, Ohio, a suburb of
Cleveland. The Company leases, under short-term lease agreements, office space
for its automobile rental operations and NAC branch operations, and office and
lot space for its automobile prep centers. The Company owns facilities in
Beach City, Ohio (9,000 square feet) and Delran, New Jersey (12,000 square
feet), which are used as automobile prep centers. The Beach City, Ohio
facility also serves as a drop-ship point for new vehicles.
The Company believes that its operational facilities and other
properties are well maintained and adequate for its future operations.
Item 3. Legal Proceedings
- - ------- -----------------
The Company self-insures for claims as discussed in Note D to the
Company's consolidated financial statements on page 25 of this Form 10-K which
is herein incorporated by reference. The Company is not involved in any other
litigation which management believes will materially and adversely affect its
financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
- - ------- ---------------------------------------------------
No matters were submitted to a vote of security holders during the three
months ended January 31, 1994.
__________________
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PART II
-------
Item 5. Market for the Registrant's Common Stock and
- - ------- ---------------------------------------------
Related Stockholder Matters
---------------------------
MARKET INFORMATION
The Company's common stock, $.05 par value, is traded over-the-counter and
is quoted by the NASDAQ National Market System under the symbol "AGNC". The
following table reflects the high and low prices for the Company's common stock
during the periods indicated as reported on the NASDAQ National Market System.
<TABLE>
<CAPTION>
PRICE RANGE OF COMMON STOCK
High Low
------- -------
<S> <C> <C>
Year ended January 31, 1994
First Quarter ....................... $ 9 $ 7 1/2
Second Quarter ...................... 8 7/8 7 5/8
Third Quarter ....................... 11 3/8 8
Fourth Quarter ...................... 13 1/2 10 1/8
Year ended January 31, 1993
First Quarter ....................... $ 13 1/2 $ 9 1/8
Second Quarter ...................... 11 1/2 9
Third Quarter ....................... 10 1/8 6 5/8
Fourth Quarter ...................... 8 7/8 6 7/8
</TABLE>
STOCKHOLDERS
There were 1,563 stockholders of record of the Company's Common Stock as
of March 31, 1994.
DIVIDENDS
It has been the Company's policy to retain earnings to finance the growth
of its business and reduce outstanding debt; accordingly the Company has
generally not issued a cash dividend. However, the Company does from time to
time reassess its cash dividend policy and may issue cash dividends in the
future if circumstances warrant. No cash dividends were declared for the
fiscal years ended January 31, 1994 and 1993.
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<TABLE>
ITEM 6. SELECTED FINANCIAL DATA - Set forth below is selected financial data
- - ------- -----------------------
with respect to the income statements of the Company for the five years ended
January 31, 1994, and with respect to the balance sheets of the Company at
January 31 in each of those years (thousands of dollars, except per share
amounts).
<CAPTION>
Selected Income Statement Data: Years ended January 31,
-------------------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
REVENUE
Automobile rentals $222,460 $282,421 $269,003 $278,953 $274,328
Dealership operations 73,303 48,949 9,229 -- --
Financial services 7,419 342 -- -- --
-------- -------- -------- -------- --------
Total 303,182 331,712 278,232 278,953 274,328
COSTS AND EXPENSES
Cost of goods sold and
operating expenses:
Automobile rentals 95,378 121,186 121,431 129,865 104,926
Dealership operations 72,321 48,665 9,551 -- --
Financial services 875 299 -- -- --
Depreciation and amortization 61,338 75,521 68,725 86,003 90,966
Selling, general and administrative 38,137 48,556 42,713 43,122 42,299
Interest 4,565 7,051 7,642 10,024 11,669
Special charge -- 3,610 -- -- --
-------- -------- -------- -------- --------
Total 272,614 304,888 250,062 269,014 249,860
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND
ACCOUNTING CHANGE 30,568 26,824 28,170 9,939 24,468
Provision for income taxes 12,330 10,018 10,986 3,459 7,340
-------- -------- -------- -------- --------
INCOME BEFORE ACCOUNTING CHANGE 18,238 16,806 17,184 6,480 17,128
Cumulative effect of change in
accounting for income taxes -- -- -- -- (2,100)
-------- -------- -------- -------- --------
NET INCOME $ 18,238 $ 16,806 $ 17,184 $ 6,480 $ 15,028
======== ======== ======== ======== ========
Per Share:
INCOME BEFORE ACCOUNTING CHANGE $ .72 $ .66 $ .68 $ .25 $ .65
Cumulative effect of change in
accounting for income taxes -- -- -- -- (.08)
-------- -------- -------- -------- --------
NET INCOME $ .72 $ .66 $ .68 $ .25 $ .57
======== ======== ======== ======== ========
*WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (000's) 25,468 25,443 25,401 26,115 26,243
======== ======== ======== ======== ========
Selected Balance Sheet Data: January 31,
-------------------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- --------
Accounts and notes receivable $ 93,347 $ 32,730 $ 26,485 $ 27,409 $ 30,889
Property and equipment, net 230,667 344,575 320,028 276,906 286,741
Total assets 350,121 406,076 372,397 326,268 338,506
Total operating debt 68,491 145,308 125,800 106,146 121,817
Stockholders' equity 177,257 157,054 141,574 128,320 125,339
Ratio of total liabilities
to stockholders' equity 1.0 1.6 1.6 1.5 1.7
Percent of operating debt to
total capital 25% 44% 43% 41% 42%
<FN>
* Weighted average number of shares outstanding has been adjusted to reflect
a 5% stock dividend in fiscal years 1991 and 1990.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial
- - ------- -------------------------------------------------
Condition and Results of Operations
-----------------------------------
RESULTS OF OPERATIONS
- - ---------------------
Overview
- - --------
Net income increased in fiscal 1994 to $18.2 million or
$.72 per share from $16.8 million or $.66 per share in fiscal 1993. Earnings
for the year were favorably impacted by the strong contribution of the
Company's financial services subsidiary, National Auto Credit (NAC), as well as
by the benefits realized from the realignment of the Company's rental
operations.
Automobile Rentals
- - ------------------
Automobile rental revenue decreased in fiscal 1994 to $222.5
million from $282.4 million in fiscal 1993. This decrease is attributable to
the successful completion of the Company's strategic realignment of its rental
fleet and concentration of its business activities in those markets with the
greatest potential for profit. Approximately 200 offices were closed or merged
and the average fleet decreased by 8,000 cars to 30,000. The average rental
rate increased 2.4% during the fiscal year and utilization remained relatively
consistent from year-to-year at approximately 90%. The Company intends to
continue the process of evaluating its office network throughout fiscal 1995
and make additional changes as required to improve its profitability.
Rental revenue increased in fiscal 1993 as compared to fiscal
1992 principally due to a 3.3% average rate increase. The Company's average
fleet approximated 38,000 cars in both fiscal 1993 and fiscal 1992.
Operating expenses declined to $95.4 million in fiscal 1994 from
$121.2 million in fiscal 1993. This 21.3% decrease is reflective of major
reductions in expenses realized as part of the previously mentioned realignment
as well as the benefits of discontinuing operation in those markets with the
most extreme claims liability exposure. As a result of the office closings in
certain high-risk, major metropolitan areas, it is expected that claims expense
will continue to be favorably impacted by reduced experience factors.
Operating expenses remained consistent between fiscal 1993 and 1992.
Dealership Operations
- - ---------------------
Dealership operations is comprised of the Company's used car
sales subsidiary operating under the name of Agency Auto Sales (AAS). Revenue
increased to $73.3 million on sales of 12,200 cars for fiscal 1994 from $48.9
million on 10,100 cars the year before.
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Average selling prices rose to $6,000 from $4,800 in fiscal 1993.
Cost of sales increased to $72.3 million from $48.7 million in fiscal 1993 as a
result of the increased sales volume. During fiscal 1994 all twenty-one AAS
retail locations were either closed or converted to servicing locations that
process and distribute cars to NAC member dealers for retail sale. This new
strategy has enabled the Company to improve margins on the sale of retired
vehicles through higher selling prices and by substantially reducing the
overhead expenses associated with the sale. The Company expects to market an
increasing percentage of its retired fleet vehicles through its NAC member
dealers as the network of dealers continues to expand throughout the country.
Dealership revenue in fiscal 1993 was $48.9 million up from $9.2
million in fiscal 1992 resulting from increased selling prices and an increase
in units sold to 10,100 in fiscal 1993 versus 2,400 in fiscal 1992.
Financial Services
- - ------------------
National Auto Credit (NAC) is the Company's financial services
subsidiary which operated through a network of 900 enrolled dealers at January
31, 1994 (100 at January 31, 1993). NAC provides retail used car buyers a
financing source where traditional sources are not readily available. NAC's
revenue, predominantly finance charge income, increased to $7.4 million in
fiscal 1994 from $300,000 in fiscal 1993, the year of start up. Contracts
financed totalled 12,000 for fiscal 1994, up from 1,000 for fiscal 1993.
Automobile installment notes receivable, gross, increased to $93.2 million at
January 31, 1994 from $5.1 million at the prior year-end.
Operating expenses increased to $900,000 in fiscal 1994 from
$300,000 in fiscal 1993 as a result of its expanded business activities which
include the operation of four branches. At January 31, 1993 the Company
operated solely out of its corporate headquarters in Solon, Ohio.
NAC's growth rate continues at a significant pace with new
milestones being achieved monthly. To service this growth the Company plans to
open at least two more branches during fiscal 1995. As of April, 1994 the
gross receivables portfolio exceeded $125 million with over 1,000 dealers
enrolled in 39 states. The Company expects to grow its receivable portfolio
significantly in fiscal 1995 as it continues its pursuit of becoming the
premier alternative financing source for new and used car dealers throughout
the country.
Depreciation and Amortization
- - -----------------------------
Depreciation and amortization expense declined $14.2 million to
$61.3 million in fiscal 1994 from $75.5 million in fiscal 1993 due to the
significant reduction in fleet size. The decrease was partially offset by a 5%
increase in average vehicle cost. The Company's composite monthly depreciation
rate was consistent in both fiscal 1994 and 1993 at approximately 1.5%.
-12-
<PAGE> 15
Depreciation and amortization expense rose to $75.5 million in
the year ended January 31, 1993 as compared to $68.7 million in the year ended
January 31, 1992. The increase was predominantly a result of the impact of
higher vehicle costs.
Selling, General and Administrative
- - -----------------------------------
Selling, general and administrative expenses decreased to $38.1
million in fiscal 1994 from $48.6 million in fiscal 1993. This decrease of 21%
resulted from the successful completion of the rental operations realignment
and across-the-board cost cutting efforts. The reduction was primarily in the
areas of staffing, advertising and promotional expenses.
Selling, general and administrative expenses increased to $48.6
million in fiscal 1993 from $42.7 million in fiscal 1992. The increase of $5.9
million was principally attributable to an increase in rental operations sales
expense and the additional costs associated with the expansion of AAS.
Interest
- - --------
Interest expense declined to $4.6 million in fiscal 1994 as
compared to $7.1 million in the prior year due to a decrease in average debt of
$36.7 million to $124.6 million and a decline in the Company's effective cost
of borrowing to 3.4% for the year ended January 31, 1994 from 4.2% for the year
ended January 31, 1993. The decline reflects generally lower borrowing rates
reflective of the short-term rate market for high quality borrowers. The lower
debt level results from a reduction in vehicle purchases, 6,000 versus 18,000
cars, necessary to sustain the reduced fleet size.
The decrease in interest expense from $7.6 million in fiscal 1992
to $7.1 million in fiscal 1993 was due to lower effective interest rates
partially offset by an increase in average debt outstanding.
Income Taxes
- - ------------
The provision for income taxes in fiscal 1994 increased to $12.3
million from $10 million in fiscal 1993 as a result of both higher pretax
income and an increase in the Company's effective tax rate from 37.4% in fiscal
1993 to 40.3% in fiscal 1994. The tax rate increase resulted predominantly
from the passage of the Omnibus Budget Reconciliation Act of 1993 effective
retroactive to January 1, 1993. This act increased the federal corporate tax
rate by 1% to 35%. In addition, as required by Financial Accounting Standards
No. 109 "Accounting for Income Taxes", deferred taxes were adjusted by $714,000
to reflect this new tax rate.
The decrease in the Company's provision for income taxes to $10
million in fiscal 1993 as compared to $11 million in fiscal 1992 resulted from
lower pretax income and a lower effective income tax rate.
-13-
<PAGE> 16
IMPACT OF INFLATION
- - -------------------
The Company is affected by inflation primarily through the
purchase of automobiles and by increased operating costs and expenses. The
impact of inflationary increases in new automobile costs is mitigated to a
certain extent by a corresponding increase in used automobile prices.
Inflationary pressures on operating costs and expenses have been
offset by the Company's continued emphasis on tight operating and cost controls
and to a lesser extent by increases in rental rates. In addition, the
Company's strong balance sheet and highly rated commercial paper program enable
it to negotiate favorable interest rates which minimize the impact of
inflationary interest costs on the Company's profitability. Further mitigating
inflationary pressures is the Company's agreement with its National Auto Credit
member dealers which provides for the assessment of interest on outstanding
advances which fluctuate with the prime rate.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company's principal sources of internally generated funds are
cash flows from operations and proceeds from the sale of rental automobiles.
Cash flows from operations in fiscal 1994 decreased to $83.1 million from
$103.1 million in fiscal 1993 principally as a result of lower rental revenues.
Proceeds from the sale of used automobiles also decreased in fiscal 1994 as
compared to fiscal 1993 as more vehicles were financed by National Auto Credit.
Total internally generated cash flows from these two sources amounted to $152.1
million and $177 million for years ended January 31, 1994 and 1993,
respectively.
External sources of funds available to the Company at January 31,
1994 amounted to $200 million in commercial paper, $144 million in unsecured,
uncommitted, short-term bank lines of credit, $40 million in unsecured,
committed bank lines of credit and $75 million in lines of credit with
automobile manufacturers. The Company also maintains the flexibility to
selectively utilize alternative financing sources for the purchase of fleet
vehicles. Outstanding borrowings at January 31, 1994 amounted to $67 million
in commercial paper and $11.1 million in unsecured, uncommitted, short-term
lines of credit.
Management believes it has sufficient internal and external
sources of funds available to meet its current obligations, to fund current
operating and capital requirements and to finance future growth.
The primary use of internally generated funds in fiscal 1994 was
to reduce operating debt by $76.7 million compared to an increase of $20.2
million in fiscal 1993. The ratio of operating
-14-
<PAGE> 17
debt to total capital decreased to 25% at January 31, 1994 as compared to 44%
at January 31, 1993. The decline reflects lower debt levels as a result of a
reduction in fleet purchases necessary to support the reduced fleet size. It
is anticipated that debt levels will decline further in fiscal 1995 due to a
reduction in fleet purchases required to sustain the Company's rental
operations.
The Company's financial flexibility has been maintained through
its $200 million commercial paper program and the related short-term committed
line of credit of $40 million, for which the Company is in full compliance with
all financial covenants. This agreement, which was extended until March 12,
1995, can be extended further at the discretion of the parties. The Company
also maintained its "Prime-1" rating by Moody's Investors Service, "A-1" rating
by Standard & Poors and the "Duff-1" rating by Duff & Phelps.
-15-
<PAGE> 18
Item 8. Financial Statements and Supplementary Data
- - ------- -------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Agency Rent-A-Car, Inc. and Subsidiaries
Solon, Ohio
We have audited the accompanying consolidated balance sheets of Agency
Rent-A-Car, Inc. and Subsidiaries as of January 31, 1994 and 1993, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended January 31, 1994. Our audits
also included the financial statement schedules listed in the Index at Item
14(a)(2). These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules
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 and
financial statement schedules. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Agency Rent-A-Car, Inc. and
Subsidiaries as of January 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1994 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/Deloitte & Touche
Cleveland, Ohio
March 25, 1994
-16-
<PAGE> 19
<TABLE>
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<CAPTION>
ASSETS
January 31,
-------------------------------
1994 1993
-------- --------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 758 $ 1,383
ACCOUNTS AND NOTES RECEIVABLE (Note B) 93,347 32,730
PREPAID EXPENSES 5,979 7,184
PROPERTY AND EQUIPMENT
Rental automobiles 247,272 384,636
Dealership inventory 26,428 13,085
Other property and equipment 31,615 35,983
-------- --------
305,315 433,704
Less: accumulated depreciation (74,648) (89,129)
-------- --------
230,667 344,575
OTHER ASSETS 19,370 20,204
-------- --------
$350,121 $406,076
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
-17-
<PAGE> 20
<TABLE>
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, Except Per Share Amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
January 31,
--------------------------------
1994 1993
-------- --------
<S> <C> <C>
LIABILITIES
Accounts payable and
accrued expenses (Note C) $ 13,609 $ 19,090
Dealer holdbacks, net 13,704 144
Self-insurance claims (Note D) 34,425 46,800
Notes payable (Note F) 9,590 9,455
Operating debt (Note G) 68,491 145,308
Deferred income taxes (Note H) 33,045 28,225
-------- --------
172,864 249,022
-------- --------
STOCKHOLDERS' EQUITY (Note I)
Preferred stock - $.05 par value,
authorized 2,000,000 shares,
none issued -- --
Common stock - $.05 par value,
authorized 30,000,000 shares,
26,649,322 and 26,348,594
shares issued, respectively 1,333 1,317
Additional paid-in capital 122,905 120,218
Retained earnings, including cumulative
foreign currency translation loss
of $895 and $292, respectively 60,876 43,241
Treasury stock, at cost, 960,668 and
948,568 shares, respectively (7,857) (7,722)
-------- --------
177,257 157,054
-------- --------
$350,121 $406,076
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
-18-
<PAGE> 21
<TABLE>
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, Except Per Share Amounts)
<CAPTION>
Years Ended January 31,
------------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Automobile rentals $222,460 $282,421 $269,003
Dealership operations 73,303 48,949 9,229
Financial services 7,419 342 --
-------- -------- --------
Total 303,182 331,712 278,232
COSTS AND EXPENSES
Cost of goods sold and operating
expenses:
Automobile rentals 95,378 121,186 121,431
Dealership operations 72,321 48,665 9,551
Financial services 875 299 --
Depreciation and amortization 61,338 75,521 68,725
Selling, general and administrative 38,137 48,556 42,713
Interest 4,565 7,051 7,642
Special charge (Note O) -- 3,610 --
-------- -------- --------
Total 272,614 304,888 250,062
-------- -------- --------
INCOME BEFORE INCOME TAXES 30,568 26,824 28,170
Provision for income taxes (Note H) 12,330 10,018 10,986
-------- -------- --------
NET INCOME $ 18,238 $ 16,806 $ 17,184
======== ======== ========
EARNINGS PER SHARE $ .72 $ .66 $ .68
======== ======== ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (000's) 25,468 25,443 25,401
======== ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
-19-
<PAGE> 22
<TABLE>
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
(Thousands of Dollars)
<CAPTION>
Common Stock Foreign
--------------------- Additional Currency
Shares Par Paid-In Retained Translation Treasury
(000's) Value Capital Earnings Adjustment Stock Total
-------- -------- ---------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 31, 1991 26,179 $ 1,310 $120,777 $ 9,543 $ 661 $(3,971) $128,320
Net income 17,184 17,184
Stock issued under
option and purchase
plans (Note J) 101 4 690 694
Treasury stock
purchases
(Note I) (4,784) (4,784)
Replacement settlement
(Note I) (1,733) 1,733 --
Foreign currency
translation 160 160
------- -------- -------- -------- -------- ------- --------
BALANCE,
JANUARY 31, 1992 26,280 1,314 119,734 26,727 821 (7,022) 141,574
Net income 16,806 16,806
Stock issued under
option and purchase
plans (Note J) 69 3 484 487
Treasury stock
purchases
(Note I) (700) (700)
Foreign currency
translation (1,113) (1,113)
------- -------- -------- -------- -------- ------- --------
BALANCE,
JANUARY 31, 1993 26,349 1,317 120,218 43,533 (292) (7,722) 157,054
Net income 18,238 18,238
Stock bonuses
(Note J) 18 1 217 218
Stock issued under
option and purchase
plans (Note J) 282 15 2,470 2,485
Treasury stock
purchases
(Note I) (135) (135)
Foreign currency
translation (603) (603)
------- -------- -------- -------- -------- ------- --------
BALANCE,
JANUARY 31, 1994 26,649 $ 1,333 $122,905 $ 61,771 $ (895) $(7,857) $177,257
======= ======== ======== ======== ======== ======= ========
<FN>
See notes to consolidated financial statements.
</TABLE>
-20-
<PAGE> 23
<TABLE>
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
<CAPTION>
Years Ended January 31,
-----------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 18,238 $ 16,806 $ 17,184
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 61,338 75,521 68,725
Provision for credit losses 1,710 160 --
Special charge -- 3,610 --
Deferred income taxes 1,727 (1,358) 2,741
Changes in operating assets and liabilities:
Accounts receivable 10,773 (4,025) 1,205
Accounts payable and accrued expenses (5,481) 1,468 (8,982)
Self-insurance claims (12,375) 1,100 5,200
Other operating assets and liabilities 7,219 9,854 3,976
-------- -------- --------
Net cash provided by operating activities 83,149 103,136 90,049
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of rental automobiles (63,212) (187,089) (180,675)
Proceeds from sale of rental automobiles and
dealership inventory 68,963 73,897 66,856
Purchase of other property and equipment (3,634) (9,308) (4,139)
Principal collected on installment notes receivable 10,032 631 --
Advances to dealers and payments of dealer
holdbacks (21,976) (120) --
Other investing activities, net 770 945 452
-------- -------- --------
Net cash used in investing activities (9,057) (121,044) (117,506)
-------- -------- --------
Cash Flows from Financing Activities:
Net borrowings (principal payments) on operating
debt and notes payable (76,682) 20,208 24,648
Payments to acquire treasury stock (135) (700) (4,994)
Other financing activities, net 2,100 (1,827) 5,013
-------- -------- --------
Net cash (used in) provided by financing
activities (74,717) 17,681 24,667
-------- -------- --------
Decrease in cash and cash equivalents (625) (227) (2,790)
Cash and cash equivalents at beginning of year 1,383 1,610 4,400
-------- -------- --------
Cash and cash equivalents at end of year $ 758 $ 1,383 $ 1,610
======== ======== ========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 5,929 $ 7,100 $ 7,579
======== ======== ========
Income taxes paid $ 7,109 $ 6,200 $ 10,426
======== ======== ========
Supplemental Schedule of Non-Cash Investing Activities:
Sale of rental automobiles and dealership inventory $ 47,497 $ 4,620 $ --
Addition to dealer holdbacks, net 35,536 264 --
-------- -------- --------
Addition to installment notes receivable, net $ 83,033 $ 4,884 $ --
======== ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
-21-
<PAGE> 24
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
NOTE A - Summary of Significant Accounting Policies
------------------------------------------
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
Agency Rent-A-Car (the Company) and its subsidiaries. All
material intercompany accounts and transactions have been
eliminated in consolidation. The Company operates principally
in the insurance replacement automobile rental industry and in
the retail financing of used automobiles through its
wholly-owned finance subsidiary, National Auto Credit.
PROPERTY AND EQUIPMENT:
Rental automobiles are stated at cost, less related purchase
discounts and incentives. Rental automobiles are depreciated
over their estimated economic lives using the straight-line
method at rates which generally range from 1.0% to 1.9% per
month, depending on make, model and time of year placed into
service. Management periodically reviews depreciation rates and
revises, where appropriate, based on a variety of factors
including the strength of the used car market, general economic
conditions and estimated useful life. Gains and losses upon the
sale of rental automobiles are either recorded as an adjustment
to depreciation expense or are included in dealership
operations, depending on the method of disposal. The net gain
(loss) from the sale of automobiles totalled $2,431,000,
($2,325,000) and ($2,455,000) for the years ended January 31,
1994, 1993 and 1992, respectively. The number of automobiles
sold by the Company was 16,538, 12,871 and 10,938 in fiscal
1994, 1993 and 1992, respectively.
Dealership inventory is stated at lower of cost or estimated
wholesale market.
Other property and equipment is depreciated using the
straight-line method over its estimated useful life.
COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED:
Cost in excess of the fair value of net assets acquired, which
is included in other assets, is amortized on the straight-line
basis over twenty-five years.
INCOME TAXES:
In accordance with Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes" (SFAS 109), deferred taxes
are provided for all temporary differences between the book and
tax basis of assets and liabilities.
-22-
<PAGE> 25
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
NOTE A - Summary of Significant Accounting Policies (cont.)
------------------------------------------
In addition, as was the case in fiscal 1994, deferred taxes are
adjusted to reflect new tax rates when they are enacted into
law. SFAS 109 was adopted in fiscal 1993 and applied
retroactively to fiscal 1990.
FINANCIAL SERVICES REVENUE:
Upon acceptance of retail installment contracts, gross
installment notes receivable are recorded net of unearned
finance charges, which are recognized as income using the
interest method over the life of the applicable contract.
Accrual of finance charges is suspended when a loan becomes
60 days or more past due. When the loan becomes current, the
accrual is resumed and past-due income is recognized.
Also included in financial services revenue are dealer
enrollment fees and loan origination fees. The non-refundable
enrollment fees are charged to each dealer upon its acceptance
as a member in the financing program and are deferred and
amortized on a straight-line basis over 12 months, net of
the related direct incremental costs associated with the
enrollment fee. The loan origination fees, net of related
direct costs, are deferred and amortized as income over the
lives of the loans as financial services revenue.
CREDIT LOSSES:
The installment notes receivable portfolio is reviewed regularly
to ensure that the allowance for loan losses is maintained at a
level considered adequate to cover potential losses. Loans are
charged-off on a loan-by-loan basis generally within 30 days
of the sale of the repossessed collateral or when no material
payment has been received for one year, as applicable.
Principal balances are charged-off against the related dealer
holdback first, and then against the allowance for loan losses,
as necessary.
DEALER HOLDBACKS:
Dealer holdbacks are the amounts payable to member dealers from
the acceptance of retail installment contracts, net of cash
advanced. The cash advances are based upon certain criteria and
are interest-bearing at the prime rate less 3%. The dealer
holdbacks protect the Company from potential losses associated
with the installment contracts. The dealer holdbacks are not
paid until all advances related to a particular dealer have been
recovered. At January 31, 1994 and 1993, the components of
dealer holdbacks were payables of $61,418,000 and $280,000, net
of $47,714,000 and $136,000 of advances, respectively.
-23-
<PAGE> 26
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
NOTE A - Summary of Significant Accounting Policies (cont.)
------------------------------------------
FOREIGN CURRENCY TRANSLATION:
Canadian assets and liabilities are translated using the
exchange rate in effect at the balance sheet date, and results
of operations are translated using an average rate for the
period. Translation adjustments are accumulated as a separate
component of stockholders' equity.
EARNINGS PER SHARE:
Earnings per share are computed on the basis of the weighted
average common shares outstanding during the period. Common
share equivalents have been excluded from this computation since
they have less than a 3% dilutive effect.
CASH EQUIVALENTS:
All highly liquid investments with a maturity of three months or
less are considered to be cash equivalents.
RECLASSIFICATIONS:
Certain prior year amounts have been reclassified to conform
with the current year presentation.
<TABLE>
NOTE B - Accounts and Notes Receivable
-----------------------------
Components of accounts and notes receivable were as follows:
<CAPTION>
January 31,
---------------------
1994 1993
------- -------
(in thousands)
<S> <C> <C>
Trade accounts $20,840 $28,160
Less: allowance for doubtful accounts (5,474) (5,317)
------- -------
Trade accounts, net 15,366 22,843
------- -------
Installment notes receivable 93,233 5,130
Unearned income (16,036) (879)
Less: allowance for loan losses (1,714) (158)
------- -------
Installment notes receivable, net 75,483 4,093
------- -------
Other 2,498 5,794
------- -------
$93,347 $32,730
======= =======
</TABLE>
Trade accounts are receivables generated when the Company rents
automobiles, principally to individuals whose automobiles are
out of service due to accident, theft, damage or major repair.
The Company extends credit to the customer's insurance company
when coverage is provided, or to their corporate employer, as
applicable, to cover the cost of the rental.
-24-
<PAGE> 27
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
NOTE B - Accounts and Notes Receivable (cont.)
-----------------------------
Installment notes receivable are loans made by the Company's
finance subsidiary which is principally engaged in the indirect
consumer financing of used automobiles. The Company records the
gross amount of the contract as an installment note receivable
and the amount of its discount as unearned income. Installment
notes generally have initial terms ranging from 12 to 42 months
with an average initial term of 30 months. The notes are
collateralized by the related vehicles sold. At January 31,
1994, the accrual of interest income was suspended on $6,860,000
of installment notes receivable.
Changes in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
January 31,
------------------------
1994 1993
------- -------
(in thousands)
<S> <C> <C>
Balance, beginning of year $ 158 $ --
Provision for losses 1,710 160
Net charge-offs (154) (2)
------- -------
Balance, end of year $ 1,714 $ 158
======= =======
</TABLE>
<TABLE>
NOTE C - Accounts Payable and Accrued Expenses
-------------------------------------
Accounts payable and accrued expenses were as follows:
<CAPTION>
January 31,
------------------------
1994 1993
------- -------
(in thousands)
<S> <C> <C>
Accounts payable $ 3,996 $ 4,557
Accrued payroll and payroll taxes 1,342 2,752
Accrued interest 479 1,911
Other accrued expenses 7,792 9,870
------- -------
$13,609 $19,090
======= =======
</TABLE>
NOTE D - Self-Insurance Claims
---------------------
The Company is primarily self-insured for property damage and
personal liability up to certain limits. The Company estimates
its liability for self-insurance claims based upon a
comprehensive actuarial analysis of reported and incurred but
not reported claims. Changes in estimates of claim costs
resulting from this analysis are recognized in income in the
period in which the estimates are changed. The Company carries
excess automobile liability insurance for bodily injury and
property damage of $5 million per occurrence, of which the
Company self-insures the first $500,000 of loss, with a
secondary loss fund of $500,000. In connection with this
program, at January 31, 1994 the Company had $7,399,000 of
outstanding irrevocable standby
-25-
<PAGE> 28
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
NOTE D - Self-Insurance Claims (cont.)
---------------------
letters of credit, as required by various state insurance
regulatory authorities. The self-insurance claims expense
included in operating expenses for automobile rentals for fiscal
1994, 1993 and 1992 were $14,417,000, $24,410,000 and
$24,511,000, respectively.
NOTE E - Lease Commitments
-----------------
The Company operates from numerous locations under operating
lease agreements. Most leases call for fixed monthly rental
payments and provide options for renewal. At January 31, 1994,
future minimum rental commitments under all non-cancellable
leases having initial or remaining terms of more than one year
were: 1995-$2,358,000; 1996-$399,000 and 1997-$67,000. Total
rent expense, which is included in cost of goods sold and
operating expenses amounted to $6,357,000, $7,585,000 and
$7,068,000 for the years ended January 31, 1994, 1993 and 1992,
respectively.
NOTE F - Notes Payable
-------------
At January 31, 1994 and 1993, the Company had utilized
$9,590,000 and $9,455,000, respectively, of its unsecured bank
lines of credit to finance the repurchase of the Company's
common stock. Interest rates on the outstanding borrowings were
3.40% at both January 31, 1994 and 1993.
<TABLE>
NOTE G - Operating Debt
--------------
Operating debt consisted of the following:
<CAPTION>
January 31,
-----------------------------
1994 1993
-------- --------
(in thousands)
<S> <C> <C>
Commercial paper $ 66,981 $134,863
Unsecured lines of credit 1,510 10,445
-------- --------
$ 68,491 $145,308
======== ========
</TABLE>
The Company has an unsecured short-term commercial paper
program in the aggregate of $200 million. Outstanding
commercial paper was borrowed at a weighted average interest
rate of 3.34% and 3.71% at January 31, 1994 and 1993,
respectively.
At January 31, 1994, the Company had short-term unsecured lines
of credit with banks totalling $144 million, net of outstanding
letters of credit. There are no fees or compensating balances
associated with these credit facilities which are provided on
an uncommitted basis.
-26-
<PAGE> 29
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
NOTE G - Operating Debt (cont.)
--------------
Borrowings under these lines of credit were at a weighted
average interest rate of 3.40% at both January 31, 1994 and
1993.
The Company maintains a committed bank facility of $40 million.
There are no compensating balances associated with this
facility and, as of January 31, 1994, the Company is in full
compliance with all restrictive covenants. The agreement
expires March 12, 1995 and can be extended at the discretion of
the parties. As of January 31, 1994 there have been no
borrowings under this agreement.
<TABLE>
NOTE H - Income Taxes
------------
The provision (benefit) for income taxes consists of:
<CAPTION>
Years Ended January 31,
--------------------------
1994 1993 1992
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Current
Federal $ 8,976 $ 8,926 $ 6,480
State 1,627 2,450 1,765
------- ------- -------
10,603 11,376 8,245
------- ------- -------
Deferred
Federal 966 (1,105) 2,253
State 761 (253) 488
------- ------- -------
1,727 (1,358) 2,741
------- ------- -------
$12,330 $10,018 $10,986
======= ======= =======
</TABLE>
Reconciliations of the Federal statutory tax rate to the
effective tax rate are as follows:
<TABLE>
<CAPTION>
Years Ended January 31,
-----------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Statutory rate 35.0% 34.0% 34.0%
State and local income taxes
(net of federal income tax) 5.1 5.4 5.3
Tax credits (2.6) (3.3) (1.2)
Impact of change in federal rate 2.3 -- --
Other .5 1.3 .9
------ ------ ------
40.3% 37.4% 39.0%
====== ====== ======
</TABLE>
-27-
<PAGE> 30
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
<TABLE>
NOTE H - Income Taxes (cont.)
------------
Deferred income taxes on the balance sheet include current
income taxes payable or refundable and net deferred tax
liabilities. Deferred tax assets, on which no valuation
allowance is considered necessary, and deferred tax liabilities,
consist of the following:
<CAPTION>
January 31,
------------------------------
1994 1993
------- --------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Self-insurance claims $ 11,921 $ 15,771
Liabilities and other reserves 2,697 1,722
Tax loss carryforward 1,433 1,856
Other 365 1,213
-------- --------
Total deferred tax assets 16,416 20,562
-------- --------
Deferred tax liabilities:
Depreciation 37,429 40,221
State income taxes 3,865 3,656
Other 4,586 4,507
-------- --------
Total deferred tax liabilities 45,880 48,384
-------- --------
$ 29,464 $ 27,822
======== ========
</TABLE>
NOTE I - Stockholders' Equity
--------------------
The Company's Board of Directors has authorized the repurchase
of up to three million shares of the Company's outstanding
stock. Shares repurchased amounted to 12,100, 100,000 and
523,800 in fiscal 1994, 1993 and 1992, respectively. In July
1991, 248,032 treasury shares were issued to certain former
shareholders of Replacement Enterprises, Inc. (Replacement).
This issuance represents the final settlement of the Company's
June 30, 1988 acquisition of Replacement.
NOTE J - Employee Benefit Plans
----------------------
1983 STOCK OPTION PLAN:
The Company's 1983 Stock Option Plan provided for the granting
of both incentive and non-qualified stock options to key
employees for the purchase of the Company's common stock. The
1983 Plan terminated on April 17, 1993 and no further options
may be granted. However, options still remain outstanding under
the 1983 Plan. Options previously granted under the Plan extend
for ten years and become exercisable in installments over the
first five years.
-28-
<PAGE> 31
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
<TABLE>
NOTE J - Employee Benefit Plans (cont.)
----------------------
A summary of changes in stock options is as follows:
<CAPTION>
Number of Price Range
Options Per Share
--------- -----------
<S> <C> <C>
Balance January 31, 1991 1,094,290 $6.33- 6.56
Granted 389,000 7.88- 9.88
Exercised (89,983) 6.56
Cancelled (84,099) 6.56- 9.88
---------
Balance January 31, 1992 1,309,208 6.33- 9.88
Granted 540,915 6.56- 9.00
Exercised (54,744) 6.56- 9.88
Cancelled (133,266) 6.56- 9.88
---------
Balance January 31, 1993 1,662,113 6.33- 9.88
Granted 4,000 7.56
Exercised (270,591) 6.33- 9.88
Cancelled (350,984) 6.56- 9.88
---------
Balance January 31, 1994 1,044,538 $6.56- 9.88
=========
</TABLE>
The outstanding options expire at various dates through 2003.
Options for 531,818 shares, 551,739 shares and 353,471 shares
were exercisable at January 31, 1994, 1993 and 1992,
respectively.
1993 EQUITY INCENTIVE PLAN:
On December 9, 1993, the Board of Directors adopted the Agency
Rent-A-Car, Inc. 1993 Equity Incentive Plan, subject to
shareholder approval. This Plan provides for the granting of
incentive and non-qualified stock options, stock appreciation
rights, common stock and restricted common stock. The total
number of shares which may be granted under this plan are two
million. There were 18,000 shares and no options granted under
this Plan during the year ended January 31, 1994.
EMPLOYEE STOCK PURCHASE PLAN:
Under the 1986 Employee Stock Purchase Plan, eligible employees
may purchase shares of the Company's common stock through
payroll deductions at the month-end market price. The total
number of shares available under this Plan is 510,513. The
Company contributes an amount equal to 20% of the employee's
payroll deduction, subject to a two-year vesting period from the
date of such contribution. There were 12,133 shares, 13,428
shares and 11,368 shares purchased under this Plan during the
years ended January 31, 1994, 1993 and 1992, respectively.
EMPLOYEE 401(K) SAVINGS AND PROFIT-SHARING PLAN:
The Company's Profit-Sharing Plan was amended to add a 401(k)
savings feature effective January 1, 1994. The amended Plan
covers substantially all employees who have completed one year
of service with the Company.
-29-
<PAGE> 32
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
NOTE J - Employee Benefit Plans (cont.)
----------------------
Contributions to this Plan by the Company are discretionary.
The Company's contributions to the Plan were $5,000, $200,000
and $200,000 for the years ended January 31, 1994, 1993 and
1992, respectively.
The amended Plan allows employees the option of purchasing
common stock of the Company. On December 9, 1993, the Board of
Directors authorized the purchase of up to 500,000 shares of the
Company's common stock, subject to shareholder approval. There
were 222 shares purchased under this Plan during the year ended
January 31, 1994.
The Company does not provide postretirement or postemployment
benefits to its employees.
NOTE K - Related Party Transactions
--------------------------
Adverama, Inc. provided the Company with placement of Yellow
Pages directory advertising, printing services and promotional
items amounting to $6,221,000, $7,354,000 and $6,198,000 during
the years ended January 31, 1994, 1993 and 1992, respectively.
Adverama, Inc. is beneficially owned by the daughter of the
Company's Chairman of the Board of Directors and majority
stockholder. The amount payable to Adverama, Inc. was $918,000
and $994,000 at January 31, 1994 and 1993, respectively.
NOTE L - Financial Instruments
---------------------
The Company has various financial instruments including cash and
cash equivalents, installment notes receivable, notes payable,
operating debt and miscellaneous other assets. Many of these
instruments are short-term in nature. The Company has
determined that the estimated fair value of its financial
instruments approximates carrying value.
NOTE M - Industry Segment Information
----------------------------
The Company operates in two principal industry segments, rental
operations and financial services. The rental operations
segment includes both automobile rentals and dealership
operations which sell automobiles retired from the rental fleet.
Operating income by segment is total revenue less cost of sales
and operating expenses. Income and expense not allocated to
business segments include interest expense and corporate
administrative costs. Corporate identifiable assets are
principally cash, administrative facilities,
-30-
<PAGE> 33
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
NOTE M - Industry Segment Information (cont.)
----------------------------
corporate receivables, investments and certain other assets.
No material amounts of the Company's sales are dependent upon a
single customer.
<TABLE>
The following outlines amounts by segments for fiscal 1994:
<CAPTION>
Year Ended January 31, 1994
-------------------------------------------------------------
(in thousands)
Rental Financial
Operations Services Corporate Consolidated
---------- --------- --------- ------------
<S> <C> <C> <C> <C>
Revenue $295,763 $ 7,419 $303,182
Cost of sales and
operating expenses 167,699 875 168,574
-------- -------- --------
Operating income 128,064 6,544 134,608
Depreciation and
amortization 59,249 60 $ 2,029 61,338
Selling, general and
administrative 27,685 -- 10,452 38,137
Interest expense -- -- 4,565 4,565
-------- -------- -------- --------
Income before income
taxes $ 41,130 $ 6,484 $(17,046) $ 30,568
======== ======== ======== ========
Identifiable assets $250,612 $ 76,380 $ 23,129 $350,121
======== ======== ======== ========
Capital expenditures $ 64,816 $ 506 $ 1,524 $ 66,846
======== ======== ======== ========
<FN>
Amounts for prior years were primarily rental operations. All
other segments were immaterial.
</TABLE>
<TABLE>
NOTE N - Quarterly Financial Data (Unaudited)
------------------------------------
The following tables set forth certain quarterly financial
information (in thousands, except per share information).
<CAPTION>
Year ended January 31, 1994:
Income Before Net Earnings
Quarter Revenue Income Taxes Income Per Share
------- ------- ------------- ------ ---------
<S> <C> <C> <C> <C>
1st $ 82,103 $ 5,530 $ 3,484 $ .14
2nd 83,510 8,027 5,057 .20
3rd 75,660 8,336 4,318 .17
4th 61,909 8,675 5,379 .21
-------- ------- ------- -----
$303,182 $30,568 $18,238 $ .72
======== ======= ======= =====
</TABLE>
<TABLE>
<CAPTION>
Year ended January 31, 1993:
Income Before Net Earnings
Quarter Revenue Income Taxes Income Per Share
------- ------- ------------- ------ ---------
<S> <C> <C> <C> <C>
1st $ 74,872 $ 5,848 $ 3,664 $ .14
2nd 86,365 10,072 6,310 .25
3rd 91,197 7,756 4,860 .19
4th 79,278 3,148 1,972 .08
-------- ------- ------- -----
$331,712 $26,824 $16,806 $ .66
======== ======= ======= =====
</TABLE>
-31-
<PAGE> 34
AGENCY RENT-A-CAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
NOTE O - Special Charge
--------------
During the fourth quarter of fiscal 1993 the Company formulated a
major plan which included the strategic realignment of its field
operations and the closing of rental offices in certain
high-risk, major metropolitan areas. This plan resulted in a
special charge of $3,610,000 or $2,274,000 after-tax for the year
ended January 31, 1993. This special charge included fleet
disposition expenses, employee termination costs, lease
commitments and other related closing expenses.
-32-
<PAGE> 35
Item 9. Disagreements on Accounting and Financial Disclosure
------- ----------------------------------------------------
NONE
-33-
<PAGE> 36
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- - -------- --------------------------------------------------
Directors of the Registrant
- - ---------------------------
The sections entitled "Election of Directors -- Nominees for Election at the
Annual Meeting" and "Directors Whose Present Terms Will Continue After The
Annual Meeting" of the Company's Proxy Statement for its Annual Meeting of
Stockholders to be held on June 22, 1994 (the "1994 Proxy Statement") are
incorporated herein by reference.
Executive Officers of the Registrant
- - ------------------------------------
Executive officers hold office until the annual meeting of the Board of
Directors, subject to earlier removal by the Board of Directors.
Name Age Position
- - ------------------ --- --------
Sam J. Frankino 69 Chairman of the Board
and Chief Executive Officer
Robert J. Bronchetti 46 President, Chief Financial
Officer and Director
Peter T. Zackaroff 38 Executive Vice President,
Chief Legal Officer and
Secretary
Edward A. Burkhart 34 Executive Vice President,
Rental Operations and Director
David R. Thomson 45 Executive Vice President,
National Auto Credit
Kelly W. Reagan 33 Senior Vice President,
Rental Operations and Fleet
and Director
James D. Vance 43 Senior Vice President,
Rental Operations
Gary J. Mooney 46 Vice President,
Auto Sales and Service
Dennis N. Ulrich 44 Vice President, Claims
Davida S. Howard 47 Vice President and Controller
-34-
<PAGE> 37
Item 10. Directors and Executive Officers of the Registrant (cont.)
- - -------- --------------------------------------------------
Sam J. Frankino
- - ---------------
Mr. Frankino, founder and majority stockholder of the Company, has served
as the Chairman of the Board of Directors of the Company since 1969. Mr.
Frankino has also served as Chief Executive Officer from 1969 to 1992 and has
resumed the position in December 1993.
Robert J. Bronchetti
- - --------------------
Mr. Bronchetti, President and Chief Financial Officer, has been employed
by the Company since May 1991 and was elected a Director in September 1993.
Mr. Bronchetti held the position of Executive Vice President and Chief
Financial Officer prior to assuming his present duties in March 1994.
Previously, Mr. Bronchetti held the positions of Vice President and Chief
Financial Officer and Vice President of Finance and Treasurer. Prior to 1991,
Mr. Bronchetti held various financial management positions with Engelhard
Corporation and its wholly-owned subsidiary, The Harshaw Chemical Company.
Peter T. Zackaroff
- - ------------------
Mr. Zackaroff, Executive Vice President, Chief Legal Officer and
Secretary, has been employed by the Company since April 1988. Mr. Zackaroff
held the positions of Vice President, Chief Legal Officer and Secretary prior
to assuming his present duties in April 1991.
Edward A. Burkhart
- - ------------------
Mr. Burkhart, Executive Vice President, Rental Operations, has been
employed by the Company since 1982 and was appointed a Director in April 1994.
Mr. Burkhart has held numerous positions with the Company including Office
Manager, District Manager, Regional Director, Regional Vice President and
Senior Vice President, Rental Operations prior to assuming his present duties
in March 1994.
David R. Thomson
- - ----------------
Mr. Thomson, Executive Vice President, National Auto Credit, has been
employed by the Company since February 1993. Mr. Thomson held the positions of
Vice President of Sales and National Sales Manager for National Auto Credit
prior to assuming his present duties in March 1994. For three years prior to
1993 he held the position of General Manager and Finance Manager at Fairchild
Acura and for the period prior to 1990 he held the position of General Manager
and Finance Manager at Ed Stinn Chevrolet.
-35-
<PAGE> 38
Item 10. Directors and Executive Officers of the Registrant (cont.)
- - -------- --------------------------------------------------
Kelly W. Reagan
- - ---------------
Mr. Reagan, Senior Vice President, Rental Operations and Fleet, has been
employed by the Company since 1981 and was elected a Director in May 1991. Mr.
Reagan has held numerous positions with the Company including Office Manager,
District Manager, Regional Director, Regional Vice President, Rental
Operations, Vice President and Senior Vice President, Fleet prior to assuming
his present duties in March 1994.
James D. Vance
- - --------------
Mr. Vance, Senior Vice President, Rental Operations, has been employed
by the Company since March 1988. Mr. Vance has held numerous positions with
the Company including Office Manager, District Manager, Regional Director and
Regional Vice President, Rental Operations prior to assuming his present duties
in December 1993.
Gary J. Mooney
- - --------------
Mr. Mooney, Vice President, Auto Sales and Service has been employed by
the Company since January 1990. Mr. Mooney held the positions of Regional
Director and National Director, Vehicle Sales prior to assuming his present
position in May 1993. Prior to 1990, Mr. Mooney was owner and Chief Executive
Officer of Able-Tex Company, Inc., a construction contractor.
Dennis N. Ulrich
- - ----------------
Mr. Ulrich, Vice President, Claims, has been employed by the Company
since July 1993. Mr. Ulrich held the position of Director of Claims prior to
assuming his present duties in December 1993. He served as the Director of
Claims for Credit General Insurance for one year and for the period prior, Mr.
Ulrich served as Assistant Vice President, Claims, at Progressive Companies.
Davida S. Howard
- - ----------------
Ms. Howard, Vice President and Controller, has been employed by the
Company since July 1990. Ms. Howard held the position of Controller prior to
assuming her present duties in March 1994. Prior to 1990, Ms. Howard was Vice
President of Finance and Administration/Controller with SNS Properties, Inc.
-36-
<PAGE> 39
Item 11. Executive Compensation
- - -------- ----------------------
The section entitled "Executive Compensation" of the 1994 Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
- - -------- ---------------------------------------------------
Management
----------
The section entitled "Security Ownership of Certain Beneficial Owners and
Management" of the 1994 Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- - -------- ----------------------------------------------
The section entitled "Certain Transactions" of the 1994 Proxy Statement is
incorporated herein by reference.
-37-
<PAGE> 40
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports
- - -------- ----------------------------------------------------
on Form 8-K
-----------
(a)(1) The following financial statements are included in Part II,
Item 8:
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets -
January 31, 1994 and 1993
Consolidated Statements of Income -
Years Ended January 31, 1994, 1993 and 1992
Consolidated Statements of Stockholders' Equity -
Years Ended January 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows
Years Ended January 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Years Ended January 31, 1994, 1993 and 1992
(a)(2) The following financial schedules for the fiscal years 1994,
1993 and 1992 are submitted herewith:
Schedule II - Amounts Receivable from Related
Parties and Underwriters, Promoters,
and Employees Other than Related
Parties
Schedule V - Property, Plant and Equipment
Schedule VI - Accumulated Depreciation, Depletion
and Amortization of Property, Plant
and Equipment
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short-Term Borrowings
Schedule X - Supplementary Income Statement
Information
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
-38-
<PAGE> 41
Item 14. Exhibits, Financial Statement Schedules, and Reports
- - -------- ----------------------------------------------------
on Form 8-K (cont.)
-----------
PAGE
NUMBER
(a)(3) Exhibits ------
(3)(a) Restated Certificate of Incorporation of
Agency Rent-A-Car, Inc. (incorporated by
reference to Exhibit 3(a) of the Company's
Annual Report on Form 10-K for the fiscal
year ended January 31, 1990 as filed on
April 25, 1990, File No. 0-12201). N/A
(b) By-Laws of Agency Rent-A-Car, Inc. (incorporated
by reference from Exhibit 3(b) of the Company's
Amendment No. 1 to Form S-1 Registration Statement
as filed on June 8, 1983, File No. 2-83408). N/A
(4)(a) Specimen Stock Certificate (incorporated by
reference to Exhibit 4(a) of the Company's
Annual Report on Form 10-K for the fiscal
year ended January 31, 1989, File No. 0-12201). N/A
(b) Form of General Motors Acceptance Corporation
"Leasing Inventory Security Agreement"
(incorporated by reference to Exhibit 4(c) of
the Company's Annual Report on Form 10-K for
fiscal year ended January 31, 1986, File
No. 0-12201). N/A
(c) Form of Chrysler Credit Corporation
"Security Agreement - Daily Rental"
(incorporated by reference to Exhibit 4(d)
of the Company's Annual Report on Form 10-K
for fiscal year ended January 31, 1987, File
No. 0-12201). N/A
(10)(a) Chrysler Dealership Agreements and Ford
Dealership Agreements (incorporated by reference
from Exhibits 10(c) and (d) of the Company's Form
S-1 Registration Statement as filed on June 8, 1983,
File No. 2-83408). N/A
(b) Agency Rent-A-Car, Inc. 1983 Incentive Stock
Option Plan (incorporated by reference from
Exhibit 10(a) of the Company's Form S-1
Registration Statement as filed on June 8, 1983,
File No. 2-83408). N/A
-39-
<PAGE> 42
Item 14. Exhibits, Financial Statement Schedules, and Reports
- - -------- ----------------------------------------------------
on Form 8-K (cont.)
-----------
PAGE
NUMBER
(a)(3) Exhibits (cont.) ------
(10)(c) Mortgage Assistance Plan (incorporated by
reference to Exhibit 10(g) of the Company's
Annual Report on Form 10-K for fiscal year
ended January 31, 1985, File No. 0-12201). N/A
(d) Agency Rent-A-Car, Inc. 1986 Employees Stock
Purchase Plan (incorporated by reference from
the Company's Form S-8 Registration Statement
as filed on December 12, 1985, File No. 33-2117). N/A
(e) Form of Directors' Indemnification Agreement
dated July 2, 1986 (incorporated by reference
to Exhibit 10(f) of the Company's Annual
Report on Form 10-K for fiscal year ended
January 31, 1988, File No. 0-12201). N/A
(f) Agency Rent-A-Car, Inc. 1993 Equity Incentive
Plan (incorporated by reference from the
Company's Form S-8 Registration Statement as filed
on December 28, 1993, File No. 33-51727). N/A
(g) Agency Rent-A-Car, Inc. 401(k) Savings and
Retirement Plan and Trust (incorporated by reference
from the Company's Form S-8 Registration Statement as
filed on December 28, 1993, File No. 33-51729). N/A
(12) Computation of Ratios. 48
(21) Subsidiaries of Agency Rent-A-Car, Inc.
at January 31, 1994. 49
(23) Independent Auditors' Consent. 50
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the
Registrant during the last quarter of the period
covered by this report.
-40-
<PAGE> 43
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Agency Rent-A-Car, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Agency Rent-A-Car, Inc.
Registrant
Date April 22, 1994 By: /s/ Sam J. Frankino
--------------------------- -------------------------------
Sam J. Frankino
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities as indicated on April 22, 1994.
Principal Executive Officer: Principal Financial
- - --------------------------- -------------------
and Accounting Officer:
----------------------
/s/Sam J. Frankino /s/Robert J.Bronchetti
- - --------------------------- --------------------------
Sam J. Frankino Robert J. Bronchetti
Chairman of the Board and President, Chief Financial
Chief Executive Officer Officer and Director
Other Directors:
---------------
/s/Noah T. Herndon /s/Joseph P. Henley
- - --------------------------- --------------------------
Noah T. Herndon, Director Joseph P. Henley, Director
/s/Per E. Hoel /s/Kelly W. Reagan
- - --------------------------- --------------------------
Per E. Hoel, Director Kelly W. Reagan,
Senior Vice President and Director
-41-
<PAGE> 44
<TABLE>
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND
EMPLOYEES OTHER THAN RELATED PARTIES
(Thousands of Dollars)
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- ----------
Deductions Balance at end of period
Balance at ----------------------------- --------------------------
beginning Amounts Amounts
Name of debtor of period Additions collected written off Current Non-current
-------------- --------- --------- --------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year ended January 31, 1994
Terry W. Holt (A) $351 $ -- $ 9 -- $ 10 (D) $332 (D)
Kelly W. Reagan (B) $223 $ -- $ 2 -- $ 2 (D) $219 (D)
Paul Rochon (C) $133 $ -- $ 48 -- $ 2 (D) $ 83 (D)
Acclaim Rent-A-Car $ 30 $ -- $ 30 -- $ -- $ --
Year ended January 31, 1993
Terry W. Holt $178 $180 $ 7 -- $ 9 $342
Kelly W. Reagan $225 $ -- $ 2 -- $ 2 $221
Paul Rochon $ 88 $ 46 $ 1 -- $ 2 $131
Acclaim Rent-A-Car $ 90 $ -- $ 60 -- $ 30 $ --
Acquire Auto Rental $ 40 $ 67 $107 -- $ -- $ --
Year ended January 31, 1992
Terry W. Holt $184 $ -- $ 6 -- $ 7 $171
Kelly W. Reagan $226 $ -- $ 1 -- $ 1 $224
Paul Rochon $ 69 $ 20 $ 1 -- $ 1 $ 87
Acclaim Rent-A-Car $ 68 $ 55 $ 33 -- $ 60 $ 30
Acquire Auto Rental $ 45 $218 $223 -- $ 40 $ --
<FN>
Notes:
(A) The receivable from Terry W. Holt consists of two secured, interest-bearing
mortgage notes receivable each bearing interest at 7.5%.
(B) The receivable from Kelly W. Reagan consists of a secured interest-bearing
mortgage note receivable of $147,000 and a loan secured by the Company's
stock for $76,000. Both the mortgage note and loan bear interest at a rate
of 7.5%.
(C) The receivable from Paul F. Rochon consists of a secured, interest-bearing
mortgage note receivable at 7.5%.
(D) Amounts included in Accounts and Notes Receivable.
</TABLE>
-42-
<PAGE> 45
<TABLE>
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
(Thousands of Dollars)
<CAPTION>
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance at Other changes Balance
beginning Additions add (deduct) at end
Classification of period at cost Retirements (A) of period
-------------- --------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Year ended
- - ----------
January 31, 1994
----------------
Rental automobiles $384,636 $ 60,398 $ 83,600 $(114,162) $247,272
Dealership
inventory 13,085 2,814 64,884 75,413 26,428
Other property
and equipment 35,983 3,634 4,839 (3,163) 31,615
-------- -------- -------- --------- --------
$433,704 $ 66,846 $153,323 $ (41,912) $305,315
======== ======== ======== ========= ========
Year ended
January 31, 1993
----------------
Rental automobiles $368,227 $177,865 $ 82,914 $ (78,542) $384,636
Dealership
inventory 7,338 3,334 44,274 46,687 13,085
Other property
and equipment 30,262 9,308 1,388 (2,199) 35,983
-------- -------- -------- --------- --------
$405,827 $190,507 $128,576 $ (34,054) $433,704
======== ======== ======== ========= ========
Year ended
- - ----------
January 31, 1992
----------------
Rental automobiles $355,578 $185,710 $135,855 $ (37,206) $368,227
Dealership
inventory -- 856 8,310 14,792 7,338
Other property
and equipment 27,413 4,139 1,144 (146) 30,262
-------- -------- -------- --------- --------
$382,991 $190,705 $145,309 $ (22,560) $405,827
======== ======== ======== ========= ========
<FN>
(A) Consists primarily of inventory transfers from rental automobiles
to dealership inventory.
</TABLE>
-43-
<PAGE> 46
<TABLE>
SCHEDULE VI
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(Thousands of Dollars)
<CAPTION>
Column A Column B Column C Column D Column E Column F
-------- ---------- ---------- ----------- ------------ ---------
Additions
Balance at charged to Other changes Balance
beginning costs and add (deduct) at end
Classification of period expenses Retirements (A) of period
- - -------------- ---------- ---------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Year ended
- - ----------
January 31, 1994
----------------
Rental automobiles $ 78,688 $52,326 $ 27,357 $(38,812) $ 64,845
Other property
and equipment 10,441 4,681 2,669 (2,650) 9,803
-------- ------- -------- -------- --------
$ 89,129 $57,007 $ 30,026 $(41,462) $ 74,648
======== ======= ======== ======== ========
Year ended
- - ----------
January 31, 1993
----------------
Rental automobiles $ 77,564 $66,669 $ 29,226 $(36,319) $ 78,688
Other property
and equipment 8,235 3,755 598 (951) 10,441
-------- ------- -------- -------- --------
$ 85,799 $70,424 $ 29,824 $(37,270) $ 89,129
======== ======= ======== ======== ========
Year ended
- - ----------
January 31, 1992
----------------
Rental automobiles $100,385 $64,042 $ 68,511 $(18,352) $ 77,564
Other property
and equipment 5,700 3,131 570 (26) 8,235
-------- ------- -------- -------- --------
$106,085 $67,173 $ 69,081 $(18,378) $ 85,799
======== ======= ======== ======== ========
<FN>
(A) Consists primarily of inventory transfers from rental automobiles
to dealership inventory.
</TABLE>
-44-
<PAGE> 47
<TABLE>
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
<CAPTION>
Column A Column B Column C Column D Column E
-------- ---------- -------------------- -------- ---------
Balance at Additions Balance
beginning Charged to: at end
Description of period Expenses Other Deductions of period
- - ------------------- ---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended
- - ----------
January 31, 1994
----------------
Allowance for
doubtful accounts $ 5,317 $ 4,441 -- $ 4,284 $ 5,474
Self-insurance claims $46,800 $14,417 -- $26,792 $34,425
Allowance for loan losses $ 158 $ 1,710 -- $ 154 $ 1,714
Year ended
- - -----------
January 31, 1993
----------------
Allowance for
doubtful accounts $ 5,315 $ 5,281 -- $ 5,279 $ 5,317
Self-insurance claims $45,700 $24,410 -- $23,310 $46,800
Allowance for loan losses $ -- $ 160 -- $ 2 $ 158
Year ended
- - ----------
January 31, 1992
----------------
Allowance for
doubtful accounts $ 4,572 $ 5,343 -- $ 4,600 $ 5,315
Self-insurance claims $40,500 $24,511 -- $19,311 $45,700
</TABLE>
-45-
<PAGE> 48
<TABLE>
SCHEDULE IX
SHORT-TERM BORROWINGS
(Thousands of Dollars)
<CAPTION>
Column A Column B Column C Column D Column E Column F
- - -------- ---------- --------- ------------- ----------------- ------------
Weighted Maximum Approximate Weighted average
Balance at average amount average amount interest
Category of aggregate end of interest outstanding outstanding rate during
short-term borrowing period rate during period during period (A) period (B)
- - -------------------- ---------- -------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Year ended
- - ----------
January 31, 1994
----------------
Payable to banks/
stock repurchase $ 9,590 3.40% $ 9,590 $ 9,483 3.28%
Payable to banks/
operating debt $ 1,510 3.40% $ 20,645 $ 6,821 3.28%
Commercial paper $ 66,981 3.34% $134,069 $108,336 3.44%
Year ended
- - ----------
January 31, 1993
----------------
Payable to banks/
stock repurchase $ 9,455 3.40% $ 9,455 $ 8,939 3.78%
Payable to banks/
operating debt $ 10,445 3.40% $ 30,945 $ 15,476 3.78%
Commercial paper $134,863 3.71% $159,101 $136,929 4.32%
Year ended
- - ----------
January 31, 1992
----------------
Payable to banks/
stock repurchase $ 8,755 4.74% $ 8,755 $ 7,359 5.68%
Payable to banks/
operating debt $ 3,345 4.67% $ 27,745 $ 9,256 5.68%
Commercial paper $122,455 5.34% $128,263 $106,575 6.33%
<FN>
(A) Computed by dividing the total weighted principal outstanding during
the period by the number of days in the year.
(B) Computed by dividing total interest expense by approximate average
amount outstanding during period (Column E).
</TABLE>
-46-
<PAGE> 49
<TABLE>
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Thousands of Dollars)
<CAPTION>
Column A Column B
-------- ------------
Charged
to Costs
Item and Expenses
-------- ------------
<S> <C>
Maintenance and Repairs
Year ended January 31, 1994 $11,578
Year ended January 31, 1993 $19,621
Year ended January 31, 1992 $17,351
<FN>
Amounts for depreciation and amortization of intangible assets,
preoperating costs and similar deferrals, taxes other than payroll
and income taxes, royalties and advertising costs are not presented
as such amounts are either not applicable or are less than 1% of net
sales.
</TABLE>
-47-
<PAGE> 1
EXHIBIT 12
----------
COMPUTATION OF RATIOS
Ratio of Total Liabilities to Stockholders' Equity
- - --------------------------------------------------
Total liabilities divided by total stockholders' equity
Percent of Operating Debt to Total Capital
- - ------------------------------------------
Operating debt divided by the sum of operating debt plus deferred income taxes
plus stockholders' equity
-48-
<PAGE> 1
<TABLE>
EXHIBIT 21
----------
SUBSIDIARIES
<CAPTION>
Percent Owned
State of by Agency
Corporate Name Organization Rent-A-Car, Inc.(1)
-------------- ------------ ----------------
<S> <C> <C>
Agency Chrysler Plymouth, Inc. Ohio l00%
Agency Ford, Inc. Ohio l00%
Agency Rent-A-Car, Ltd. Canada l00%
Financial Recovery Corporation of America, Inc. Delaware 100%
Agency Auto Sales, Inc. Delaware 100%
National Auto Credit, Inc. Delaware 100%
<FN>
All of the subsidiaries listed above are included in the consolidated financial
statements of the Company. The Company also has various subsidiaries which,
when considered in the aggregate, do not constitute a significant subsidiary.
(1) Agency Rent-A-Car, Inc. also operates under the names Altra Auto
Rental and Automate Auto Rental.
</TABLE>
-49-
<PAGE> 1
EXHIBIT 23
----------
INDEPENDENT AUDITORS' CONSENT
- - -----------------------------
We consent to the incorporation by reference in Registration Statements No.
33-51727, No. 33-51729, No. 2-93984 and No. 33-2117 of Agency Rent-A-Car, Inc.
on Form S-8 of our report dated March 25, 1994 appearing in this Annual Report
on Form 10-K of Agency Rent-A-Car, Inc. for the year ended January 31, 1994.
/s/Deloitte & Touche
Cleveland, Ohio
March 25, 1994
50