<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1996
REGISTRATION NO. 333-
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TEAM RENTAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 7514 59-3227576
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification number)
</TABLE>
125 BASIN STREET
SUITE 210
DAYTONA BEACH, FLORIDA 32114
(904) 238-7035
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
SANFORD MILLER
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
TEAM RENTAL GROUP, INC.
125 BASIN STREET
SUITE 210
DAYTONA BEACH, FLORIDA 32114
(904) 238-7035
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
<TABLE>
<CAPTION>
<S> <C>
Jeffrey M. Stein B. Lynn Walsh J. Stephen Hufford Hunton
King & Spalding & Williams NationsBank Plaza -- Suite
191 Peachtree Street 4100 600 Peachtree Street, N.E.
Atlanta, Georgia 30303-1763 Atlanta, Georgia 30303-2216 (404)
(404) 572-4600 888-4000
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BE REGISTERED REGISTERED (1) PER UNIT (2) PRICE (2) FEE
- ------------------------------ ---------------- ---------------- ------------------ --------------
<S> <C> <C> <C> <C>
Class A Common Stock, $.01 par
value per share .............. 4,223,636 shares $14.50 $61,242,722 $21,119
- ------------------------------ ---------------- ---------------- ------------------ --------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Includes 550,909 shares of Class A Common Stock issuable upon exercise
of an over-allotment option granted by the Company to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
based upon the average between the high and low price of the Common
Stock on the Nasdaq National Market on May 17, 1996, pursuant to Rule
457(c).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
<PAGE>
TEAM RENTAL GROUP, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
- ---------------------------------------------------- --------------------------------------------------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus ......... Facing Page; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus ...................................... Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges .............. Prospectus Summary; Risk Factors; The Company
4. Use of Proceeds ................................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Price ................. Outside Front Cover Page; Underwriting
6. Dilution ........................................ Not Applicable
7. Selling Security Holders ........................ Principal and Selling Stockholders
8. Plan of Distribution ............................ Underwriting
9. Description of Securities to Be Registered ..... Description of Capital Stock
10. Interests of Named Experts and Counsel ......... Not Applicable
11. Information with Respect to the Registrant ..... Outside Front Cover Page; Prospectus Summary; Risk
Factors; The Company; Use of Proceeds; Price Range
of Common Stock; Dividend Policy; Capitalization;
Pro Forma Consolidated Financial Statements;
Selected Financial Data; Management's Discussion
and Analysis of Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal and Selling Stockholders;
Description of Capital Stock; Shares Eligible for
Future Sale
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities . Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
SUBJECT TO COMPLETION, DATED MAY 24, 1996
3,672,727 Shares
[TEAM LOGO]
Team Rental Group, Inc.
Class A Common Stock
($.01 par value)
Of the shares of Class A Common Stock of Team Rental Group, Inc. (the
"Company" or "TEAM") offered hereby (the "Offering"), 3,000,000 shares are
being sold by the Company and 672,727 shares are being sold by the Selling
Stockholders named herein under "Principal and Selling Stockholders" (the
"Selling Stockholders"). The Company will not receive any proceeds from the
sale of shares by the Selling Stockholders. The Class A Common Stock is
listed on The Nasdaq Stock Market's National Market under the symbol "TBUD."
On May 21, 1996, the last reported sale price of the Class A Common Stock on
the Nasdaq National Market was $14.50 per share.
The Company has two classes of Common Stock, the Class A Common Stock, par
value $.01 per share (the "Class A Common Stock"), and the Class B Common
Stock, par value $.01 per share (the "Class B Common Stock"). Holders of the
Class A Common Stock are entitled to one vote per share and holders of the
Class B Common Stock are entitled to ten votes per share.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE CLASS A COMMON STOCK, SEE "RISK FACTORS" BEGINNING
ON PAGE 9 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
------------ ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Per Share ..... $ $ $ $
Total(2) ...... $ $ $ $
</TABLE>
- ------------
(1) Before deduction of expenses payable by the Company estimated at $
.
(2) The Company has granted the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase a maximum of 550,909
additional shares of Class A Common Stock to cover over-allotments of
shares. If the option is exercised in full, the total Price to Public
will be $ , Underwriting Discounts and Commissions will be $ and
Proceeds to Company will be $ . See "Underwriting."
The shares are offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the Class A Common
Stock will be ready for delivery on or about , 1996, in immediately
available funds.
CS First Boston
The Chicago Corporation
McDonald & Company
Securities, Inc.
The date of this Prospectus is , 1996.
<PAGE>
[MAP AND PHOTOS TO BE ADDED]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS AND THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE CLASS A COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
DURING THE OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN
THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE CLASS A COMMON STOCK PURSUANT TO EXEMPTIONS FROM
RULES 10b-6, 10b-7 AND 10b-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial
statements and notes thereto appearing elsewhere in this Prospectus. Unless
the context otherwise requires, references to the "Company" or "TEAM" in this
Prospectus include Team Rental Group, Inc. and its operating subsidiaries and
predecessors. The information set forth herein assumes no exercise of the
Underwriters' over-allotment option. "Common Stock," as used herein, refers
collectively and without distinction to the Class A Common Stock and the
Class B Common Stock.
THE COMPANY
Team Rental Group, Inc. is the largest Budget Rent a Car ("Budget")
franchisee worldwide and is one of the largest independent retailers of late
model automobiles in the United States. In 1994, TEAM embarked on a strategy
to significantly expand its Budget franchise base and to develop a retail car
sales operation within its Budget franchise territories. This strategy
leverages management's experience and creates certain operating efficiencies
between these complementary businesses. Through its 158 vehicle rental
locations, TEAM had pro forma 1995 revenue of $203.5 million, and the Company
operates nine retail car sales facilities with monthly sales revenue of $10.2
million for April 1996. The Company estimates it will purchase approximately
40,000 vehicles over the next twelve months, consisting of new automobiles
and trucks for its Budget rental operations, late model automobiles for its
retail car sales operations and new passenger vans for its van pooling
operations.
Since its initial public offering in August 1994, the Company has pursued
an aggressive growth strategy in both its vehicle rental and retail car sales
operations. TEAM has added nine Budget franchise territories with 133 current
locations to the four territories that it operated at the time of its initial
public offering, thereby enhancing the economies of scale in its operations,
balancing its geographic scope and reducing seasonal fluctuations in its
performance. Concurrently, the Company has developed or acquired its first
nine retail car sales facilities--all currently within its Budget
territories--and now expects to significantly expand by adding facilities in
(i) its seven existing car sales markets, (ii) the Budget territories where
it does not currently have retail car sales operations and (iii) markets
beyond its franchise territories.
The following tables describe TEAM's acquisitions of Budget franchises and
openings of retail car sales facilities:
VEHICLE RENTAL--BUDGET FRANCHISE ACQUISITIONS
<TABLE>
<CAPTION>
1995
LOCATIONS AT FLEET SIZE AT REVENUES
FRANCHISE TERRITORY DATE ACQUIRED APRIL 30, 1996 APRIL 30, 1996 (MILLIONS)
- -------------------- --------------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
Prior to August 1994
San Diego ........... April 1987 13 1,683 $ 18.6
Albany .............. August 1991 3 236 2.5
Rochester ........... November 1991 3 209 2.5
Richmond ............ December 1991 6 329 3.6
-------------- -------------- ----------
Total for franchises owned prior to
initial public offering ............. 25 2,457 27.2
Since August 1994
Philadelphia ........ August 1994 16 1,695 21.0
Pittsburgh .......... August 1994 13 921 13.0
Cincinnati .......... August 1994 7 653 8.0
Fort Wayne .......... November 1994 3 180 1.7
Charlotte ........... January 1995 8 567 6.5
Dayton .............. January 1995 7 460 5.2
Hartford ............ March 1995 13 871 9.6
Los Angeles ......... October 1995 45 5,086 63.4(1)
Phoenix ............. February 1996 21 3,690 42.9(1)
-------------- -------------- ----------
Total for franchises acquired since
initial public offering ............. 133 14,123 171.3
-------------- -------------- ----------
Total ................................ 158 16,580 $198.5
============== ============== ==========
</TABLE>
- ------------
(1) Includes operations prior to their date of acquisition by the Company.
See the Unaudited Pro Forma Consolidated Statement of Operations for
the year ended December 31, 1995 included under "Pro Forma Consolidated
Financial Statements."
3
<PAGE>
RETAIL CAR SALES--FACILITIES OPENED
<TABLE>
<CAPTION>
APRIL 1996
DATE APRIL 1996 SALES REVENUE
METROPOLITAN AREA ACQUIRED/OPENED VEHICLES SOLD (THOUSANDS)
- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C>
San Diego--East . November 1994 98 $ 1,814
Dayton--North ... January 1995 61 909
San Diego--West . April 1995 66 914
Philadelphia ..... May 1995 101 1,669
Charlotte ........ September 1995 82 1,941
Richmond ......... October 1995 59 1,441
Ontario .......... October 1995 61 1,303
Cincinnati ....... April 1996 13 169
Dayton--South ... April 1996 -- --
--------------- ---------------
Total ........... 541 $10,160
=============== ===============
</TABLE>
In February 1996, the Company also acquired VPSI, Inc. ("Van Pool"), which
operates van pooling services in 21 markets. Van Pool had a fleet of
approximately 3,000 vehicles at April 30, 1996.
The Company's strategy is to enhance its profitability by: (i)
significantly expanding its retail car sales operations; (ii) acquiring
additional Budget franchises; and (iii) enhancing the profitability of its
Budget franchises.
Sanford Miller (Chairman and Chief Executive Officer), John P. Kennedy
(President and Chief Operating Officer) and Jeffrey D. Congdon (Chief
Financial Officer and Secretary) (collectively, the "Principal Executive
Officers") have a combined 74 years of experience in the vehicle rental
business and have acquired and operated 54 Budget franchises over the past 15
years. In addition, Messrs. Miller and Congdon have a combined 25 years of
experience operating retail car sales facilities. These individuals will
remain the controlling stockholders of the Company after consummation of the
Offering.
The principal executive offices of the Company are located at 125 Basin
Street, Suite 210, Daytona Beach, Florida 32114, and its telephone number at
that location is (904) 238-7035.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Class A Common Stock offered by:
The Company ........................................... 3,000,000 shares
Selling Stockholders .................................. 672,727 shares
3,672,727 shares
Common Stock to be outstanding after the Offering(1) .. 8,493,176 shares of Class A Common Stock
1,936,600 shares of Class B Common Stock
10,429,776 shares of Common Stock
The proceeds to the Company from the Offering will
be used to (i) reduce outstanding indebtedness and
working capital lines and (ii) capitalize a finance
subsidiary that will issue asset-backed notes for fleet
financing. The Company will not receive any proceeds
Use of Proceeds to the Company ......................... from the sale of shares by the Selling Stockholders.
Nasdaq National Market symbol .......................... TBUD
</TABLE>
- ------------
(1) Does not include 285,000 shares of the Class A Common Stock reserved
for issuance under the Company's stock option plans, of which options
to purchase 217,600 shares have been granted, and 362,500 shares of the
Class A Common Stock reserved for issuance upon exercise of outstanding
stock purchase warrants. See "Management--Benefit Plans" and
"Description of Capital Stock-- Warrants."
CONCURRENT TRANSACTIONS
Subject to and concurrently with the completion of the Offering, the
Company's wholly-owned, special purpose finance subsidiary, Team Fleet
Financing Corporation ("TFFC"), will enter into an additional asset-backed
note facility (the "Third Fleet Financing Facility", and together with the
Company's two existing asset-backed facilities, the "Fleet Financing
Facilities"). The Offering is contingent upon the consummation of the Third
Fleet Financing Facility. The Third Fleet Financing Facility will consist of
$162.5 million of asset-backed notes. CS First Boston Corporation will act as
placement agent in connection with the private placement of these notes. The
proceeds of the Third Fleet Financing Facility will be used to acquire or
refinance up to approximately 10,000 vehicles for the Company's fleet. The
Company's operating subsidiaries will lease these vehicles from TFFC.
5
<PAGE>
SUMMARY FINANCIAL DATA
Historical Data. The 1994 data include results of operations for the
Company's Philadelphia and Pittsburgh, Pennsylvania, Cincinnati, Ohio and Ft.
Wayne, Indiana operations from their respective acquisition dates. The 1995
data include results of operations for the Company's Hartford, Connecticut
and Los Angeles, California operations from their respective acquisition
dates. The data for the three months ended March 31, 1995 include results of
operations for the Company's Hartford, Connecticut operation from the date of
its acquisition. The data for the three months ended March 31, 1996 include
results of operations for the Company's Phoenix, Arizona operation and for
Van Pool from their respective acquisition dates. Each of the foregoing
acquisitions was accounted for using the purchase method of accounting. The
data for 1993 include the separate capital structures of the corporations
that were acquired and are presented on a combined basis as companies under
common control and, therefore, do not provide a meaningful basis for
presentation of earnings per share data.
Pro Forma Data. The following tables also set forth certain unaudited pro
forma consolidated financial and operating data for the Company (i) for the
year ended December 31, 1995, giving effect to the following transactions as
if they had occurred on January 1, 1995: (a) the acquisition of the Los
Angeles, California Budget franchise (the "Los Angeles Acquisition"), which
was effective on October 1, 1995 and (b) the acquisition of the Phoenix,
Arizona Budget franchise (the "Phoenix Acquisition"), which was completed on
February 27, 1996 (the Los Angeles Acquisition and the Phoenix Acquisition
are referred to collectively as the "Acquisitions"), and (ii) for the three
months ended March 31, 1996, giving effect to the Phoenix Acquisition as if
it had occurred on January 1, 1995.
Pro Forma, As Adjusted Data. The unaudited pro forma consolidated
statements of operations, as adjusted, include adjustments for the
Acquisitions, as described above, and adjustments for the sale of 3,000,000
shares of the Class A Common Stock offered by the Company hereby with
estimated net proceeds of $40.5 million, as described under "Use of
Proceeds," the funding of the Third Fleet Financing Facility and the
repayment of certain of the Company's outstanding indebtedness from the
proceeds of the Offering and the Third Fleet Financing Facility. The pro
forma statement of operations data, as adjusted, for the year ended December
31, 1995 and the three months ended March 31, 1996, give effect to such
transactions as if they had occurred on January 1, 1995.
6
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
PRO PRO FORMA
FORMA AS ADJUSTED
HISTORICAL (UNAUDITED) (UNAUDITED)
-------------------------------- ----------- -------------
1993 1994 1995 1995 1995
--------- --------- ---------- ----------- -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND DAILY DOLLAR
AVERAGE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Vehicle rental revenues ..... $ 22,321 $ 38,642 $107,067 $ 203,525 $ 203,525
Retail car sales revenues ... -- -- 42,662 42,662 42,662
--------- --------- ---------- ----------- -------------
Total operating revenues ... 22,321 38,642 149,729 246,187 246,187
Vehicle depreciation expense 4,358 7,382 27,476 59,392 59,392
Operating income ............. 2,450 4,196 14,180 19,329 19,329
Vehicle interest expense . . 2,462 3,909 13,874 26,844 21,108
Non-vehicle interest
expense (income), net ....... 401 (139) (716) 2,127 (1,090)
Income (loss) from continuing
operations before income
taxes ....................... 610 426 1,022 (9,642) (689)
Net income (loss) ............ 428 250 337 (5,785) (413)
Weighted average common
shares outstanding (000s) -- 3,704 6,369 7,430 10,430
Earnings (loss) per common
share ....................... -- $ 0.07 $ 0.05 $ (.78) $ (.04)
OPERATING DATA:
Adjusted EBITDA(1) ........... $ 1,392 $ 1,632 $ 3,854 $ (1,228) $ 4,508
BUDGET RENTAL DATA:
Locations in operation at
period end ................. 19 63 133 157 157
Number of useable vehicles
at period end(2) ........... 2,006 5,044 11,143 14,955 14,955
Rental transactions(3) ..... 163,000 276,000 689,000 1,277,000 1,277,000
Daily dollar average(4) .... $ 34.01 $ 37.32 $ 41.26 $ 39.64 $ 39.64
Vehicle utilization(5) ..... 77.2% 80.6% 80.0% 78.0% 78.0%
Average monthly revenue per
unit(6) ..................... $ 791 $ 909 $ 1,007 $ 946 $ 946
RETAIL CAR SALES DATA:
Locations in operation at
period end ................. -- 1 7 7 7
Average monthly vehicles
sold ....................... -- 51 351 351 351
Average monthly sales
revenue .................... -- $ 86 $ 4,883 $ 4,883 $ 4,883
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
-----------------------------------------------
PRO FORMA
PRO AS
HISTORICAL FORMA ADJUSTED
----------------------- --------- -----------
1995 1996 1996 1996
------------ --------- --------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Vehicle rental revenues ..... $ 17,354 $ 44,697 $ 52,911 $ 52,911
Retail car sales revenues ... 4,916 21,097 21,097 21,097
------------ --------- --------- -----------
Total operating revenues ... 22,770 65,794 74,008 74,008
Vehicle depreciation expense 5,126 11,804 13,983 13,983
Operating income ............. 372 7,254 7,749 7,749
Vehicle interest expense . . 2,616 5,621 6,612 5,661
Non-vehicle interest
expense (income), net ....... (333) (495) (276) (678)
Income (loss) from continuing
operations before income
taxes ....................... (1,911) 2,128 1,413 2,766
Net income (loss) ............ (1,146) 1,277 848 1,660
Weighted average common
shares outstanding (000s) 6,037 7,256 7,430 10,430
Earnings (loss) per common
share ....................... $ (.19) $ .18 $ .11 $ .16
OPERATING DATA:
Adjusted EBITDA(1) ........... $ (1,447) $ 3,432 $ 3,233 $ 4,184
BUDGET RENTAL DATA:
Locations in operation at
period end ................. 94 159 159 159
Number of useable vehicles
at period end(2) ........... 7,076 17,264 17,264 17,264
Rental transactions(3) ..... 120,700 237,700 281,000 281,000
Daily dollar average(4) .... $ 39.67 $ 40.89 $ 41.13 $ 41.13
Vehicle utilization(5) ..... 77.8% 84.2% 83.0% 83.0%
Average monthly revenue per
unit(6) ..................... $ 926 $ 1,030 $ 1,022 $ 1,022
RETAIL CAR SALES DATA:
Locations in operation at
period end ................. 2 7 7 7
Average monthly vehicles
sold ....................... 99 411 411 411
Average monthly sales
revenue .................... $ 1,632 $ 6,476 $ 6,476 $ 6,476
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
(UNAUDITED)
-------------------------
ACTUAL AS ADJUSTED
---------- -------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Revenue earning vehicles, net $314,591 $314,591
Retail car sales inventory .. 13,832 13,832
Total assets ................. 478,677 478,677
Fleet financing facilities .. 145,682 308,182
Other vehicle obligations ... 207,039 44,539
Notes payable ................ 47,508 7,008
Total debt ................... 400,968 360,468
Common stock warrant ......... 2,000 2,000
Stockholders' equity ......... 43,596 84,096
</TABLE>
7
<PAGE>
- ------------
(1) Adjusted EBITDA consists of income before income taxes plus (a)
non-vehicle depreciation and amortization expenses and (b) non-vehicle
interest expense. Adjusted EBITDA is not presented as an alternative
measure of operating results or cash flow from operations (as
determined in accordance with generally accepted accounting
principles), but is presented because it is a widely accepted financial
indicator of a company's ability to service unsecured debt.
(2) Vehicles available for rental.
(3) Rounded to the nearest thousand.
(4) Rental revenue divided by number of days that vehicles were actually
rented.
(5) Number of days vehicles were actually rented divided by number of days
vehicles were available for rent.
(6) Average monthly revenue divided by average monthly fleet.
8
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors in
addition to other information included in this Prospectus before purchasing
any of the shares of Class A Common Stock.
RISKS INHERENT IN GROWTH STRATEGY
The Company's growth strategy has placed and will continue to place
significant demands on the Company's resources. Since completing its initial
public offering in August 1994, the Company has increased its rental
operations from four Budget franchise territories with 25 locations to
thirteen territories with 158 locations, and increased the size of its fleet
from 2,457 vehicles to 16,580 vehicles. Certain of the franchises acquired by
the Company had either been unprofitable or had inconsistent profitability
prior to their acquisition by the Company, and the Company may acquire
under-performing franchises in the future. The inability of the Company to
improve the profitability of such acquired franchises or to successfully
integrate acquired franchises into its operations could have an adverse
effect on the Company's results of operations.
Since November 1994, the Company has developed or acquired its first nine
retail car sales facilities, which constitutes a new line of business for the
Company, and which the Company plans to expand significantly. The Company's
retail car sales facilities have a limited operating history. The successful
growth of the Company's retail car sales operation will depend on a number of
factors, including the identification of suitable locations, the negotiation
of leases for those locations on acceptable terms, the hiring, training and
retention of skilled managers for each facility, implementation of standard
operating practices, site construction or refurbishment and development of
additional sources of cars for resale. A number of these factors will be
beyond the Company's control. As a result, there can be no assurance that the
Company will be able to continue to develop or acquire new retail car sales
operations.
COMPETITION
The vehicle rental industry is characterized by intense competition,
particularly with respect to price and service. In any geographic market, the
Company may encounter competition from national, regional and local vehicle
rental companies. The Company's main competitors are The Hertz Corporation
("Hertz"), Avis, Inc. ("Avis"), Alamo Rent a Car Inc. ("Alamo"), National Car
Rental System, Inc. ("National"), Dollar Rent a Car Systems, Inc. ("Dollar")
and Enterprise Rent a Car ("Enterprise"). There have been occasions when the
major vehicle rental companies have been adversely affected by industry-wide
price cutting, and the Company has on such occasions lowered its prices in
response. The Company is generally not able to unilaterally raise its prices
or to maintain its prices in times of industry price cutting. See
"Business--Competition."
The retail car sales industry is characterized by intense competition,
consisting primarily of local new car dealerships selling new and late model
cars. The Company believes that competition for the customer seeking to
purchase a late model car is based primarily on price and selection, while a
customer originally intending to purchase a new car may select a late-model
car based on perceived value. In addition to local dealerships, the Company
may face competition from retailers that compete on the basis of large
inventory size, no-haggle pricing and high quality service.
REQUIREMENTS FOR CAPITAL; EFFECT OF CHANGES IN INTEREST RATES
The vehicle rental business is capital intensive and the Company has
sought to reduce the cost of financing its fleet of vehicles by arranging
more advantageous structured financings. Since its initial public offering in
August 1994, the Company has financed its rental vehicles primarily through
asset-backed note facilities and traditional bank credit facilities. The
Company currently has two asset-backed note facilities in place to provide
financing for rental vehicles eligible for repurchase by specified automobile
manufacturers at fixed prices on designated dates pursuant to such
manufacturers' vehicle repurchase programs ("Program Vehicles"). Concurrently
with the completion of the Offering, the Company will enter into the Third
Fleet Financing Facility and capitalize TFFC with $12.5 million from the
proceeds of the Offering. Approximately $162.5 million of asset-backed notes
will be issued under the Third Fleet
9
<PAGE>
Financing Facility in order to provide financing for approximately 10,000
additional vehicles, which may include rental vehicles that are not subject
to manufacturers' repurchase program. In aggregate, the Fleet Financing
Facilities will provide financing for approximately 19,000 vehicles, which
the Company believes is sufficient, together with vehicles financed under
other vehicle obligations, to meet its base fleet requirements as of April
30, 1996.
The Company anticipates that the proceeds of the Third Fleet Financing
Facility and the Offering, together with amounts provided by its traditional
financing sources, will be sufficient to meet its financing needs for the
foreseeable future. Certain events, such as a material increase in damage to
vehicles, could reduce the value of the collateral securing the Fleet
Financing Facilities and cause the acceleration of the repayment of a portion
of the principal of the Fleet Financing Facilities. The Company has financed
its retail car sales inventory with a $20.0 million secured line of credit
from a finance company that is payable on demand. The failure to obtain
sufficient fleet financing or car sales inventory financing on satisfactory
terms would materially adversely affect the Company's operations.
The Company had $397.5 million of indebtedness outstanding at March 31,
1996, substantially all of which bears interest at a floating rate based on
either LIBOR or the prime rate of interest. Accordingly, any increase in
prevailing interest rates would result in an increase in interest expense
incurred by the Company, which could have an adverse effect on the Company's
results of operations. Certain of the agreements under which the Company has
borrowings outstanding include significant covenants that, among other
things, restrict the ability of the Company to incur additional indebtedness,
repay or refinance other indebtedness or amend other debt instruments, pay
dividends, create liens on assets, engage in mergers or consolidations or
acquire other businesses and otherwise restrict corporate activities. In
addition, the Company is required to comply with specified financial tests
and ratios. The Company is currently in compliance with the restrictions and
covenants contained in its debt agreements, however, its ability to continue
to comply could be affected by events beyond its control, including
prevailing economic and industry conditions.
There can be no assurance that the sources of financing utilized by the
Company or alternative financing will remain or become available to the
Company or on terms acceptable to the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
POTENTIAL CHANGES IN MANUFACTURERS' REPURCHASE PROGRAMS
At March 31, 1996, approximately 80% of the vehicles in the Company's
rental fleet were Program Vehicles. The availability of Program Vehicles
limit the Company's risk of a decline in residual value at the time of
disposition and enable the Company to fix its depreciation expense in
advance. Depreciation, which is the difference between the Company's
acquisition cost and disposition proceeds on any vehicle, is the largest cost
factor in the Company's operations. The Company believes that manufacturers'
repurchase programs enable the manufacturers to stimulate fleet sales in
times of weak consumer demand for new automobiles. In response to strong U.S.
consumer demand for passenger vehicles in 1993 and 1994, the major U.S.
automobile manufacturers reduced the number of vehicles subject to repurchase
programs and the financial incentives associated with these programs. U.S.
consumer demand for passenger vehicles began to weaken during the second and
third quarters of 1995 and this weakness has continued to date in 1996. In
response to these market conditions, there was an increase in the
availability of repurchase programs with respect to 1996 model year vehicles,
particularly repurchase programs for imported vehicles and these programs are
expected to continue for 1997 model year vehicles. However, the Company could
be subject to increased risk relating to vehicle depreciation if automobile
manufacturers reduce the availability of Program Vehicles or related
incentives.
The Company could be at a competitive disadvantage if U.S. automobile
manufacturers selectively restrict eligibility to participate in their
repurchase programs. Over the past decade, U.S. automobile manufacturers have
acquired direct or indirect equity stakes in most of the major car rental
systems. General Motors Corporation ("GM") has an equity interest in Avis;
Ford Motor Company ("Ford") owns Hertz and has an equity interest in Budget
Rent a Car Corporation ("BRAC"); and Chrysler Corporation ("Chrysler") has
equity interests in Dollar and Thrifty Rent-A-Car Systems, Inc. ("Thrifty").
For the 1996
10
<PAGE>
model year, the Company purchased substantially all of its vehicles pursuant
to repurchase programs sponsored by Ford (including its affiliate Mazda Motor
of America, Inc. ("Mazda")) and Chrysler. Any effort by GM or Chrysler to
restrict eligibility to participate in repurchase programs to rental systems
within their corporate families could adversely affect the Company's ability
to compete with those of its competitors that have continued access to such
programs. Similarly, any effort by Ford or Mazda to restrict the eligibility
of Budget franchise operations (as opposed to Budget operations owned by
BRAC) to participate in their repurchase programs could have a material
adverse effect on the Company's competitive position. The Company is not
aware of any plans by the manufacturers to selectively restrict its
eligibility to participate in their repurchase programs.
FRANCHISEE STATUS; DEPENDENCE ON BUDGET SYSTEM
The Company's vehicle rental operating subsidiaries are franchisees of
BRAC or, in the case of (i) its Los Angeles and San Diego operations,
sub-franchisees of Budget Rent a Car of Southern California ("SoCal"), and
(ii) its Los Angeles truck rental operations, sub-franchisee of
Transportation and Storage Associates ("TA"). Significant matters relating to
the Company's growth and operational strategies must be coordinated with, and
approved by, the Company's franchisors. Each of the Company's franchise
agreements provides that the franchisor has the right to terminate the
franchise granted thereunder if the Company is in violation of the terms of
such franchise agreement or the Budget operating manual. Any such termination
could have a material adverse effect on the Company. Pursuant to each
franchise agreement, the Company must meet certain guidelines relating to the
number of rental offices in a franchised territory, the number of vehicles
maintained for rental and the amount of advertising and promotion
expenditures. See "Business--Franchise Agreements" and "Certain
Transactions."
Due to the nature of franchising and the Company's franchise agreements,
the success of the Company is, to a large extent, dependent upon the overall
success of Budget's worldwide system (the "Budget System"), including the
performance of other Budget franchisees. In particular, the Company relies on
BRAC for national promotion, advertising and marketing programs and for the
BRAC computerized reservation system. The Company believes that BRAC has
depended in the past on the financial support of Ford and may in the future
continue to rely on such support. Thus, any material adverse change in the
financial condition, management or marketing efforts of BRAC or the Budget
System, including any material reduction of Ford's financial support of BRAC,
could have an adverse impact on the Company's results of operations and
financial condition. In addition, the Company's status as a sub-franchisee of
SoCal and TA makes its Budget franchises in Los Angeles and San Diego subject
to termination as a result of the termination of the underlying Budget
franchise agreements between BRAC and SoCal and TA, respectively. See
"Business--Vehicle Rental Operations--The Budget System."
Pursuant to its standard franchise agreements, BRAC generally has a right
of first refusal with respect to the sale or transfer of Budget franchises
and, even if it does not exercise such right, must consent to the transfer of
a Budget franchise. The consent of BRAC is generally required for the sale,
assignment or transfer of 33.3% or more of the equity ownership or voting
control of a Budget franchisee, and BRAC has the right to approve any
transfer of shares by Messrs. Miller, Kennedy and Congdon that would reduce
the combined voting power of the shares of Common Stock which they own to
less than 50.1%. See "Principal and Selling Stockholders." Messrs. Miller and
Congdon, the Company's Chief Executive Officer and Chief Financial Officer,
respectively, are currently bound by an agreement with BRAC that limits their
ability to acquire additional Budget franchises outside of Southern
California prior to May 14, 1999 without the consent of BRAC. Although BRAC
has consented to the Company's previous acquisitions, there can be no
assurance that BRAC will decline to exercise its right of first refusal or
will consent to additional acquisitions by the Company in the future.
SEASONALITY
The Company's third quarter, during the peak summer travel months, has
historically been the strongest quarter of the year and in 1995 accounted for
approximately 28% of overall revenue. As a result, any occurrence that
disrupts travel patterns during the summer period could have a material
adverse
11
<PAGE>
effect on the Company's annual performance. The Company has sought to reduce
this seasonal effect by acquiring franchise territories that are winter
travel destinations, and the Company believes that its recent acquisitions of
the Los Angeles and the Phoenix operations have reduced and will continue to
reduce these seasonal effects. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality."
REGULATION OF LOSS DAMAGE WAIVERS
A traditional revenue source for the vehicle rental industry has been the
sale of loss damage waivers, by which rental companies agree to relieve a
customer from financial responsibility arising from vehicle damage incurred
during the rental period. Approximately 6% of the Company's rental revenue
during 1995 was generated by the sale of loss damage waivers. The U.S. House
of Representatives has from time to time considered legislation that would
regulate the conditions under which loss damage waivers may be sold by
vehicle rental companies. House Bill H.R. 175, introduced in January 1995,
seeks to prohibit the imposition of liability on renters for loss of, or
damage to, rented vehicles, except in certain circumstances, and would
prohibit the sale of loss damage waivers. In addition, New York State has
enacted legislation which eliminated the right of vehicle rental companies to
offer for sale loss damage waivers, and California has capped the rates which
can be charged for this protection at $9.00 per day. To date, 21 states have
enacted legislation which requires disclosure to each customer at the time of
rental that damage to the rented vehicle may be covered by the customer's
personal automobile insurance. Adoption of national or additional state
legislation affecting or limiting the sale of loss damage waivers could
result in the loss of this revenue source.
ENVIRONMENTAL RISKS INHERENT IN ON-SITE PETROLEUM STORAGE
Twenty-nine of the Company's facilities contain tanks for the storage of
petroleum products, such as gasoline, diesel fuel and waste oils. At 27 of
the Company's locations, one or more of these tanks are located underground.
The Company maintains an environmental compliance program that includes the
implementation of required technical and operational procedures designed to
minimize the potential for leaks and spills, maintenance of records and the
regular testing of tank systems for tightness. However, there can be no
assurance that these tank systems will at all times remain free from leaks or
that the use of these tanks will not result in spills. Any leak or spill,
depending on such factors as the material involved, quantity and
environmental setting, could result in interruptions to the Company's
operations and expenditures that could have a material adverse effect on the
Company's results of operations and financial condition.
There can be no assurance that future environmental legislation and
regulations will not require material expenditures by the Company or
otherwise have a material adverse effect on the Company's operations. See
"Business--Regulation and Environmental Matters."
RISK OF NON-RENEWAL OF AIRPORT CONCESSIONS
The Company conducts rental operations at 25 airports, with each of these
operations conducted pursuant to a concession agreement granted by the local
airport authority. In general, these concession agreements are subject to
competitive bidding at the time of renewal. The terms of the Company's
airport concession agreements are varied and include month-to-month terms at
certain locations and fixed terms of various durations at other locations.
The Company is at risk of losing its ability to operate at an airport if it
is not a successful bidder at the time its concession agreement is subject to
renewal.
DEPENDENCE ON PRINCIPAL EXECUTIVE OFFICERS
The Company's existing operations and continued future development are
dependent in part on the active participation of the Company's Principal
Executive Officers. The loss of the services of one or more of these
individuals could have a material adverse effect on the Company. See
"Management."
SHARES ELIGIBLE FOR FUTURE SALE
A substantial number of shares of Common Stock currently outstanding, or
issuable upon exercise of stock options and stock purchase warrants, are or
will become eligible for future sale in the public
12
<PAGE>
market at prescribed times pursuant to applicable regulations and
registration rights of certain security holders. The Company, its executive
officers and directors and the Selling Stockholders have agreed that, for a
period of 90 days after the date of this Prospectus, they will not sell or
otherwise dispose of any shares of Common Stock without the prior written
consent of CS First Boston Corporation. Significant sales of the Class A
Common Stock in the public market following the Offering could adversely
affect prevailing market prices. See "Shares Eligible for Future Sale."
VOTING CONTROL BY PRINCIPAL EXECUTIVE OFFICERS
The Company has two classes of Common Stock: Class A Common Stock, which
is entitled to one vote per share, and Class B Common Stock, which is
entitled to ten votes per share. The Principal Executive Officers own all of
the outstanding shares of Class B Common Stock, which, following the
Offering, will represent approximately 69.5% of the combined voting power of
both classes of Common Stock, assuming no exercise of the Underwriters'
over-allotment option. As a result, the Principal Executive Officers will
continue to be able to elect all of the Company's Board of Directors, thereby
ensuring that members elected by them will continue to direct the business,
policies and management of the Company. See "Principal and Selling
Stockholders."
POTENTIAL ANTI-TAKEOVER EFFECTS OF CHARTER AND BYLAW PROVISIONS; POSSIBLE
ISSUANCES OF PREFERRED STOCK
Certain provisions of Delaware law, the Company's Amended and Restated
Certificate of Incorporation (in particular, the voting rights of the Class B
Common Stock) and the Company's Bylaws could delay or impede the removal of
incumbent directors and could make it more difficult for a third party to
acquire, or could discourage a third party from attempting to acquire,
control of the Company. Such provisions could limit the price that certain
investors might be willing to pay in the future for shares of the Class A
Common Stock. In addition, shares of preferred stock may be issued by the
Board of Directors without stockholder approval on such terms and conditions,
and having such rights, privileges and preferences, as the Board of Directors
may determine. The rights of the holders of the Class A Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued in the future. The Company has no
current plans to issue any shares of preferred stock. See "Description of
Capital Stock--Preferred Stock" and "Description of Capital Stock--Section
203."
13
<PAGE>
THE COMPANY
Team Rental Group, Inc. is the largest Budget franchisee worldwide and is
one of the largest independent retailers of late model automobiles in the
United States. In 1994, TEAM embarked on a strategy to significantly expand
its Budget franchise base and to develop a retail car sales operation within
its Budget franchise territories. This strategy leverages management's
experience and creates certain operating efficiencies between these
complementary businesses. Through its 158 vehicle rental locations, TEAM had
pro forma 1995 revenue of $203.5 million, and the Company operates nine
retail car sales facilities with monthly sales revenue of $10.2 million for
April 1996. The Company estimates it will purchase approximately 40,000
vehicles over the next twelve months, consisting of new automobiles and
trucks for its Budget rental operations, late model automobiles for its
retail car sales operations and new passenger vans for its van pooling
operations.
The following chart illustrates the functional organization of the Company
and the operating territories of each business.
[TEAM LOGO]
VEHICLE RENTAL GROUP
RETAIL CAR SALES
GROUP
<TABLE>
<CAPTION>
BUDGET FRANCHISE GROUP
TERRITORY # OF LOCATIONS
- -------------------------- --------------
<S> <C>
Albany 3
Charlotte 8
Cincinnati 7
Dayton 7
Fort Wayne 3
Hartford 13
Los Angeles 45
Philadelphia 16
Phoenix 21
Pittsburgh 13
Richmond 6
Rochester 3
San Diego 13
--------------
158
</TABLE>
<TABLE>
<CAPTION>
VAN POOL OPERATIONS
- --------------------------------------------
<S> <C>
LOCATIONS: 21
Atlanta
Austin
Boston
Chicago
Cincinnati
Dallas/Ft. Worth
Danbury
Detroit
Honolulu
Houston
Los Angeles
Melbourne
Newark
New Orleans
Orlando
Pittsburgh
Richmond
San Francisco
St. Paul
Tampa
Washington, DC
</TABLE>
<TABLE>
<CAPTION>
RETAIL CAR SALES
FACILITIES
LOCATIONS: 9
<S> <C>
Charlotte
Cincinnati
Dayton--North
Dayton--South
Ontario
Philadelphia
Richmond
San Diego--East
San Diego--West
</TABLE>
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $40.5 million (approximately $47.9 million if the Underwriters'
over-allotment option is exercised in full). The Company will not receive any
proceeds from the sale of shares by the Selling Stockholders.
The Company intends to use the net proceeds from the Offering as follows:
(i) approximately $28 million to reduce outstanding indebtedness and working
capital lines, including indebtedness of $17.0 million payable to
NationsBank, National Association (South), $7.0 million of which was incurred
to finance the Phoenix Acquisition and $10.0 million of which was incurred to
repay borrowings incurred in connection with the Los Angeles Acquisition,
which indebtedness matures May 27, 1996 and bears interest at a rate of prime
plus 3.0% (currently 11.25%), and $11.0 million to reduce a working capital
line payable to NBD Bank, N.A., which is due November 1996 and bears interest
at a rate of LIBOR plus 1.85 (currently approximately 7.7%); and (ii)
approximately $12.5 million to capitalize a finance subsidiary that will
issue asset-backed notes under the Third Fleet Financing Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Transactions."
PRICE RANGE OF COMMON STOCK
The Common Stock is listed on the Nasdaq National Market under the symbol
"TBUD." The following table sets forth the high and low sale prices per share
for the Class A Common Stock as reported to the Company by the Nasdaq
National Market for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
1994
Third Quarter (commencing August 18, 1994) $12.50 $9.31
Fourth Quarter ............................. 11.50 9.00
1995
First Quarter .............................. 9.75 8.00
Second Quarter ............................. 9.00 7.25
Third Quarter .............................. 11.38 6.50
Fourth Quarter ............................. 10.75 8.13
1996
First Quarter .............................. 10.50 8.25
Second Quarter (through May 21, 1996) ..... 14.50 9.25
</TABLE>
On May 21, 1996, the last sale price of the Common Stock as reported on
the Nasdaq National Market was $14.50 per share. As of May 21, 1996, there
were approximately 80 holders of record of the Class A Common Stock.
DIVIDEND POLICY
The Company has never declared or paid dividends on its Common Stock, and
anticipates that all earnings will be retained for use in its business. The
declaration and payment of any future dividends is at the discretion of the
Board of Directors of the Company. However, the Company is party to a number
of loan agreements which restrict its ability to pay cash dividends.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996 (i) on an actual basis and (ii) as adjusted to give effect to
sale of the shares of the Class A Common Stock offered by the Company hereby,
the funding of the Third Fleet Facility and the application of the estimated
net proceeds therefrom. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
(UNAUDITED)
--------------------------
PRO FORMA, AS
ACTUAL ADJUSTED(1)
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Fleet Financing Facilities:
First Fleet Financing Facility .................................... $105,682 $105,682
Second Fleet Financing Facility ................................... 40,000 40,000
Third Fleet Financing Facility .................................... -- 162,500
Other vehicle obligations .......................................... 207,039 44,539
Notes payable ...................................................... 47,508 7,008
Capital lease obligations .......................................... 739 739
---------- --------------
Total debt ........................................................ 400,968 360,468
---------- --------------
Common stock warrant ................................................ 2,000 2,000
---------- --------------
Stockholders' equity:
Class A Common Stock, $.01 par value, one vote per share,
17,500,000 shares authorized; 5,529,843 shares issued and
5,493,176 shares outstanding; 8,529,843 shares and 8,493,176
shares outstanding
(pro forma, as adjusted)(2) ....................................... 54 84
Class B Common Stock, $.01 par value, ten votes per share,
2,500,000 shares authorized, 1,936,600 shares issued and
outstanding ........................................................ 20 20
Additional paid-in capital .......................................... 44,709 85,179
Accumulated deficit ................................................. (857) (857)
Treasury stock (at cost) ............................................ (330) (330)
---------- --------------
Total stockholders' equity ....................................... 43,596 84,096
---------- --------------
Total capitalization ............................................. $446,564 $446,564
========== ==============
</TABLE>
- ------------
(1) Pro forma, as adjusted, assumes 3,000,000 shares of Class A Common
Stock are issued at $13.50 per share, net, to the Company.
(2) Does not include 285,000 shares of the Class A Common Stock reserved
for issuance under the Company's stock option plans (of which options
to purchase 217,600 shares have been granted) and 362,500 shares of the
Class A Common Stock reserved for issuance under outstanding warrants.
See "Management--Benefit Plans" and "Description of Capital
Stock--Warrants."
16
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated statements of operations
for the year ended December 31, 1995 give effect to the following
transactions as if they had occurred on January 1, 1995: (i) the Los Angeles
Acquisition, which was effective on October 1, 1995, and the Phoenix
Acquisition, which was completed on February 27, 1996 and, (ii) the Offering,
the funding of the Third Fleet Financing Facility (the "Related Financing")
and the repayment of certain of the Company's outstanding indebtedness from
the proceeds thereof. The following unaudited pro forma consolidated
statements of operations for the three months ended March 31, 1996 give
effect to the following transactions as if they occurred on January 1, 1995:
(i) the Phoenix Acquisition and (ii) the Offering, the funding of the Third
Fleet Financing Facility and the repayment of certain of the Company's
outstanding indebtedness from the proceeds thereof. The Acquisitions have
been accounted for using the purchase method of accounting.
These unaudited pro forma consolidated financial statements may not be
indicative of the results that actually would have occurred if the
transactions referred to above had been in effect on the dates indicated or
the results that may be obtained in the future. These statements are
qualified in their entirety by, and should be read in conjunction with, the
financial statements of the Company, BRAC-OPCO, Inc. (Los Angeles), and
Arizona Rent-A-Car Systems, Inc. (Phoenix) and the notes thereto included
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Unaudited pro forma earnings (loss) and per common share data, as
adjusted, are calculated using 10,429,776 shares of Common Stock outstanding
subsequent to the sale of the Class A Common Stock offered hereby.
17
<PAGE>
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL(A) LOS ANGELES(B) PHOENIX(C)
------------- -------------- ----------
<S> <C> <C> <C>
Operating revenues ............ $149,729 $49,121 $47,337
Operating expenses:
Cost of retail car sales .... 38,021 -- --
Direct vehicle and operating 13,704 4,949 10,770
Depreciation-vehicles ........ 27,476 18,123 13,888
Depreciation-nonvehicle ..... 1,341 545 1,362
Advertising, promotion and
selling ..................... 11,826 3,988 4,189
Facilities ................... 11,121 4,885 4,257
Personnel .................... 24,515 10,209 9,486
General and administrative .. 6,686 1,539 2,743
Amortization ................. 859 251 11
------------- -------------- ----------
Total operating expenses ... 135,549 44,489 46,706
------------- -------------- ----------
Operating income .............. 14,180 4,632 631
Other income and expense:
Vehicle interest ............. 13,874 7,589 5,381
Other interest ............... 632 640 138
Interest income .............. (1,348) (27) --
------------- -------------- ----------
Total other expense, net ... 13,158 8,202 5,519
------------- -------------- ----------
Income (loss) before income
taxes, accounting charges and
discontinued operations ..... 1,022 (3,570) (4,888)
Provision (benefit) for income
taxes ........................ 685 (1,427) (1,880)
------------- -------------- ----------
Income (loss) before
cumulative effect of
accounting changes and loss
from discontinued operations $ 337 $(2,143) $(3,008)
------------- -------------- ----------
Weighted average common shares
outstanding .................. 6,369 -- --
Earnings (loss) per common
share ........................ $ 0.05 -- --
============= ============== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE
ACQUISITIONS
ADJUSTMENTS FOR AND THE
ADJUSTMENTS PRO FORMA FOR THE OFFERING AND OFFERING AND
FOR THE THE RELATED RELATED
ACQUISITIONS ACQUISITIONS FINANCING FINANCING
-------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Operating revenues ............ $ -- $246,187 $ -- $246,187
Operating expenses:
Cost of retail car sales .... -- 38,021 -- 38,021
Direct vehicle and operating 2,084 (1) 31,507 -- 31,507
Depreciation-vehicles ........ (95) (2) 59,392 -- 59,392
Depreciation-nonvehicle ..... 3,248 -- 3,248
Advertising, promotion and
selling ..................... (165) (3) 19,838 -- 19,838
Facilities ................... (326) (4) 19,937 -- 19,937
Personnel .................... (1,927) (5) 42,283 -- 42,283
General and administrative .. -- 10,968 -- 10,968
Amortization ................. 543 (6) 1,664 -- 1,664
-------------- -------------- ---------------- --------------
Total operating expenses ... 114 226,858 -- 226,858
-------------- -------------- ---------------- --------------
Operating income .............. (114) 19,329 -- 19,329
Other income and expense:
Vehicle interest ............. -- 26,844 (5,736)(8) 21,108
Other interest ............... 2,092 (7) 3,502 (3,217)(9) 285
Interest income .............. -- (1,375) -- (1,375)
-------------- -------------- ---------------- --------------
Total other expense, net ... 2,092 28,971 8,953 20,018
-------------- -------------- ---------------- --------------
Income (loss) before income
taxes, accounting charges and
discontinued operations ..... (2,206) (9,642) 8,953 (689)
Provision (benefit) for income
taxes ........................ (1,235) (10) (3,857) 3,581(10) (276)
-------------- -------------- ---------------- --------------
Income (loss) before
cumulative effect of
accounting changes and loss
from discontinued operations $ (971) $ (5,785) $ 5,372 $ (413)
-------------- -------------- ---------------- --------------
Weighted average common shares
outstanding .................. 1,061 7,430 3,000 10,430
Earnings (loss) per common
share ........................ -- $ (0.78) -- $ (0.04)
============== ============== ================ ==============
</TABLE>
- ------------
(a) Includes results of operation of the Los Angeles Budget franchise from
October 1, 1995.
(b) Reflects operations of the Los Angeles Budget franchise for the period
from January 1, 1995 through September 30, 1995.
(c) Reflects operations of the Phoenix Budget franchise for the period from
March 1, 1995 through February 29, 1996. Prior to the Phoenix
Acquisition, the fiscal year of the Phoenix Budget franchise ended on
the last day of February.
See Notes to Unaudited Pro Forma Consolidated Statements of Operations.
18
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
(1) To reflect the addition of royalty payments to Budget Rent-A-Car of
Southern California ("SoCal"), the former owner of the Los Angeles
Budget franchise (representing 5% of concessionable revenues), which
was a condition of the purchase.
(2) To reflect a reduction in the fleet depreciation expense for cars
allocated to the managers of the Los Angeles Budget franchise.
(3) To reflect a reduction in credit card merchant processing fees based
on the utilization of the Company's current credit card rate.
(4) To reflect the elimination of a write-off on assets not acquired by
the Company.
(5) To reflect (a) a $865,045 reduction in wages, bonuses and benefits
resulting from a reduction in the number of employees for the
acquired operations, (b) a $742,000 reduction relating to salaries
previously paid to officers of the acquired operations terminated
concurrent with the acquisition, (c) a $267,000 reduction relating to
termination charges relating to medical benefits and (d) a $53,000
reduction resulting from the elimination of retirement plans.
(6) To reflect (a) a $187,000 increase in franchise rights amortization
expense related to the Los Angeles Acquisition and (b) a $356,000
increase in franchise rights amortization expense relating to the
Phoenix Acquisition, in each case based on a full year amortization
period.
(7) To reflect additional interest expense that would have been incurred
on borrowings of $20.2 million to effect the Acquisitions.
(8) To reflect the reduction in vehicle interest expense related to the
difference in historical interest rates on vehicle debt that will be
repaid from the proceeds of the Third Fleet Financing Facility. The
Company finances its fleet at rates based on LIBOR plus a fixed
spread. The average spread over LIBOR on the Third Fleet Financing
Facility is assumed to have been 0.65%.
(9) To reflect the elimination of interest expense on non-vehicle debt
associated with the Acquisitions.
(10) To adjust income taxes for an effective tax rate of 40%.
19
<PAGE>
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE PHOENIX
ADJUSTMENTS ACQUISITION AND
ADJUSTMENTS FOR PRO FORMA FOR FOR THE OFFERING THE OFFERING
THE PHOENIX THE PHOENIX AND RELATED AND RELATED
HISTORICAL(A) PHOENIX(B) ACQUISITION ACQUISITION FINANCING FINANCING
------------- ---------- --------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues ......... $65,794 $8,214 $ -- $74,008 $ -- $74,008
Operating expenses:
Cost of retail car sales .. 17,840 -- -- 17,840 -- 17,840
Direct vehicle and
operating ................. 5,959 1,479 -- 7,438 -- 7,438
Depreciation-vehicles ..... 11,804 2,179 -- 13,983 -- 13,983
Depreciation-non-vehicle .. 536 229 -- 765 -- 765
Advertising, promotion and
selling ................... 4,600 915 -- 5,515 -- 5,515
Facilities ................ 4,328 838 -- 5,166 -- 5,166
Personnel ................. 10,689 1,912 (337)(1) 12,264 -- 12,264
General and administrative 2,270 436 -- 2,706 -- 2,706
Amortization .............. 514 8 60 (2) 582 -- 582
------------- ---------- --------------- ------------- ---------------- ---------------
Total operating expenses . 58,540 7,996 (277) 66,259 -- 66,259
------------- ---------- --------------- ------------- ---------------- ---------------
Operating income ........... 7,254 218 277 7,749 -- 7,749
Other (income) and expense:
Vehicle interest .......... 5,621 991 -- 6,612 (951)(4) 5,661
Other interest ............ 254 2 217 (3) 473 (402)(5) 71
Interest income ........... (749) -- -- (749) (749)
------------- ---------- --------------- ------------- ---------------- ---------------
Total other expense, net . 5,126 993 217 6,336 (1,353) 4,983
------------- ---------- --------------- ------------- ---------------- ---------------
Income (loss) before income
taxes, accounting changes
and discontinued operations 2,128 (775) 60 1,413 1,353 2,766
Provision (benefit) for
income taxes .............. 851 (310) 24 565 541 1,106
------------- ---------- --------------- ------------- ---------------- ---------------
Income (loss) before
cumulative effect of
accounting change and loss
for discontinued operations $ 1,277 $ (465) $ 36 $ 848 $ 812 $ 1,660
============= ========== =============== ============= ================ ===============
Weighted average common
share outstanding ......... 7,256 -- 174 7,430 3,000 10,430
Earnings (loss) per common
share ..................... $ 0.18 -- -- $ 0.11 -- $ 0.16
============= ========== =============== ============= ================ ===============
</TABLE>
- ------------
(a) Includes results of operations of the Phoenix Budget franchise from
March 1, 1996.
(b) Reflects operations of the Phoenix Budget franchise for the period from
January 1, 1996 through February 29, 1996.
See Notes to Unaudited Pro Forma Consolidated Statements of Operations.
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996
(1) To reflect (a) a $312,000 reduction relating to salaries and bonuses
previously paid to officers of the Phoenix Budget franchise and (b) a
$25,000 reduction resulting from the elimination of a retirement
plan.
(2) To reflect an increase in franchise rights amortization expense.
(3) To reflect additional interest expense that would have been incurred
on borrowings of $15.0 million to effect the Phoenix Acquisition.
(4) To reflect the reduction in vehicle interest expense related to the
difference in historical interests rates on vehicle debt with
acquired locations that will be repaid from the proceeds of the Third
Fleet Financing Facility. The Company finances its fleet at
LIBOR-based rates plus a fixed spread. The average spread over LIBOR
on the Company's fleet borrowings for the three months ended March
31, 1996 would have been .67%.
(5) To reflect the elimination of interest expense on non-vehicle debt
associated with the Acquisitions.
21
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated statement of
operations data and selected consolidated balance sheet data of the Company
for the five year period ended December 31, 1995. Such data were derived from
the audited consolidated financial statements of the Company. The audited
consolidated financial statements and notes thereto of the Company for the
three year period ended December 31, 1995 are included elsewhere in this
Prospectus. The following table also sets forth selected consolidated
statement of operations data and selected consolidated balance sheet data of
the Company for the three months ended March 31, 1995 and March 31, 1996.
Such data were derived from the unaudited consolidated financial statements
of the Company included elsewhere in this Prospectus which unaudited
consolidated financial statements, in the opinion of the Company's
management, include all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation of the financial position and
results of operations for such periods. The results of operations for the
three months ended March 31, 1996 are not necessarily indicative of results
that may be expected for the entire year. The selected consolidated financial
data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto of the Company
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- ----------- --------- ---------
(STATEMENT OF OPERATIONS DATA IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Vehicle rental revenues .... $15,105 $21,968 $22,321 $38,642 $107,067 $17,354 $44,697
Retail car sales revenues .. -- -- -- -- 42,662 4,916 21,097
--------- --------- --------- --------- ----------- --------- ---------
Total operating revenues . 15,105 21,968 22,321 38,642 149,729 22,270 65,794
Direct vehicle and operating
expenses .................. 3,903 5,989 5,452 9,439 13,704 2,625 5,959
Cost of car sales .......... -- -- -- -- 38,021 4,258 17,840
Vehicle depreciation expense 1,939 2,832 4,358 7,382 27,476 5,126 11,804
Non-vehicle depreciation
expense ................... 227 212 229 446 1,341 285 536
Advertising, promotion and
selling ................... 1,066 1,477 1,658 3,090 11,826 2,036 4,600
Facilities ................. 2,020 2,662 2,695 4,398 11,121 2,076 4,328
Personnel .................. 3,741 4,292 4,537 7,947 24,515 4,494 10,689
General and administrative
expenses .................. 935 736 790 1,515 6,686 886 2,270
Amortization of franchise
rights .................... 170 151 152 229 859 112 514
--------- --------- --------- --------- ----------- --------- ---------
Operating income ........... 1,104 3,617 2,450 4,196 14,180 372 7,254
Vehicle interest expense .. 1,867 2,440 2,462 3,909 13,874 2,616 5,621
Non-vehicle interest
expense (income), net .... 503 619 401 (139) (716) (333) 495
Nonrecurring income ........ -- -- (1,023) -- -- -- --
--------- --------- --------- --------- ----------- --------- ---------
Income (loss) before
provision for income taxes (1,266) 558 610 426 1,022 (1,911) 2,128
Net income (loss) .......... (1,266) 558 428 250 337 (1,146) 1,277
Weighted average common
shares outstanding ........ -- -- -- 3,704 6,369 6,037 7,256
Earnings per common share .. -- -- -- 0.07 0.05 (0.19) 0.18
Earnings per common share --
pro forma, as adjusted .... -- -- -- -- (0.04)(1) -- 0.16(1)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Adjusted EBITDA(2) (in thousands) ............ $ 1,392 $ 1,632 $ 3,854 $ (1,447) $ 3,432
VEHICLE RENTAL DATA:
Locations in operation at period end ....... 19 63 133 94 159
Number of useable vehicles at period end(3) 2,006 5,044 11,143 7,076 17,264
Rental transactions(4) ...................... 163,000 276,000 689,000 120,700 237,700
Daily dollar average(5) ..................... $ 34.01 $ 37.32 $ 41.26 $ 39.67 $ 40.89
Vehicle utilization(6) ...................... 77.2% 80.6% 80.0% 77.8% 84.2%
Average monthly revenue per unit(7) ........ $ 791 $ 909 1,007 $ 926 $ 1,030
RETAIL CAR SALES DATA:
Locations in operation at period end ....... -- 1 7 2 7
Average monthly vehicles sold ............... -- 51 351 99 411
Average monthly sales revenue ............... -- $ 86 $ 4,883 $ 1,632 $ 6,476
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31, 1996
---------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 (UNAUDITED)
--------- --------- --------- --------- ---------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Revenue earning vehicles, net $ -- $23,343 $23,577 $ 97,127 $219,927 $314,591
Retail car sales inventory ... -- -- -- 943 8,938 13,832
Total assets .................. 36,800 32,027 33,325 162,991 386,323 478,677
Fleet financing facilities ... -- -- -- 105,682 145,682 145,682
Other vehicle obligations .... -- 23,890 23,857 18,097 149,965 207,039
Notes payable ................. -- 3,795 1,824 2,785 22,586 47,508
Total debt .................... 34,531 27,880 28,533 127,187 319,017 400,968
Redeemable preferred stock ... -- 2,747 2,747 -- -- --
Common stock warrant .......... -- -- -- 2,000 2,000 2,000
Stockholders' equity (deficit) (1,737) (1,344) (1,251) 26,748 39,592 43,596
</TABLE>
- ------------
(1) To reflect the Acquisitions, the Offering, the funding of the Third
Fleet Financing Facility and the repayment of certain of the Company's
outstanding indebtedness from the proceeds thereof.
(2) Adjusted EBITDA consists of income before provision for income taxes
plus (a) non-vehicle depreciation and amortization expenses and (b)
non-vehicle interest expense. Adjusted EBITDA is not presented as an
alternative measure of operating results or cash flow from operations
(as determined in accordance with generally accepted accounting
principles), but is presented because it is a widely accepted financial
indicator of a company's ability to service unsecured debt.
(3) Vehicles available for rental.
(4) Rounded to the nearest thousand.
(5) Rental revenue divided by number of days that vehicles were actually
rented.
(6) Number of days vehicles were actually rented divided by number of days
vehicles were available for rent.
(7) Average monthly revenue divided by average monthly fleet.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Team Rental Group, Inc. is the largest Budget Rent a Car franchisee
worldwide and is one of the largest independent retailers of late model
automobiles in the United States. In 1994, TEAM embarked on a strategy to
significantly expand its Budget franchise base and to develop a retail car
sales operation within its Budget franchise territories. This strategy
leverages management's experience and creates certain operating efficiencies
between these complementary businesses. Through its 158 vehicle rental
locations, TEAM had pro forma 1995 revenues of $203.5 million, and the
Company operates nine retail car sales facilities with monthly sales revenue
of $10.2 million for April 1996. The Company estimates it will purchase
approximately 40,000 vehicles over the next twelve months, consisting of new
automobiles and trucks for its Budget rental operations, late model
automobiles for its retail car sales operations and new passenger vans for
its van pooling operations.
The results of operations for 1993 reported herein include the combined
operations of the San Diego, California, Richmond, Virginia and Albany and
Rochester, New York Budget franchises (collectively, the "1993 Operations"),
which had been operated as separate businesses, but were under common
ownership and control. The 1994 results of operations reported herein include
the 1993 Operations and the acquired operations of the Pittsburgh and
Philadelphia, Pennsylvania, Cincinnati, Ohio and Fort Wayne, Indiana Budget
franchises from their respective acquisition dates through December 31, 1994.
The 1995 results of operations reported herein include the consolidated
operations of the entities comprising the Company at December 31, 1994 and
the acquired operations of the Dayton, Ohio, Charlotte, North Carolina,
Hartford, Connecticut, and Los Angeles, California Budget franchises from
their respective acquisition dates through December 31, 1995. Results of
operations for the three months ended March 31, 1996 reported herein include
the acquired operations of the Budget franchise for Phoenix, Arizona and of
Van Pool from their respective acquisition dates through March 31, 1996.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
operating revenues represented by certain items in the Company's consolidated
statements of operations.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1993 1994 1995
------- ------ -------
<S> <C> <C> <C>
Vehicle rental revenues ..................... 100% 100% 71.5%
Retail car sales revenues ................... -- -- 28.5
------- ------ -------
Total operating revenues .................. 100 100 100
Direct vehicle and operating expenses ...... 24.5 24.4 9.2
Cost of car sales ........................... -- -- 25.4
Vehicle depreciation expense ................ 19.5 19.1 18.4
Non-vehicle depreciation expense ............ 1.0 1.2 0.9
Advertising, promotion and selling .......... 7.4 8.0 7.9
Facilities .................................. 12.1 11.4 7.4
Personnel ................................... 20.3 20.6 16.4
General and administrative expenses ........ 3.6 3.9 4.5
Amortization of franchise rights ............ 0.7 0.6 0.6
------- ------ -------
Operating income ............................ 10.9 10.8 9.5
Vehicle interest expense ................... 11.0 10.1 9.3
Non-vehicle interest expense (income), net 1.8 0.4 (0.5)
Nonrecurring income ........................ (4.6) -- --
------- ------ -------
Income (loss) before income taxes ........... 2.7 1.1 0.7
Provision (benefit) for income taxes ....... 0.8 0.5 0.5
------- ------ -------
Net income (loss) ........................... 1.9% 0.6% 0.2%
======= ====== =======
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------
1995 1996
-------- -------
<S> <C> <C>
Vehicle rental revenues ..................... 78.0% 67.9%
Retail car sales revenues ................... 22.0 32.1
-------- -------
Total operating revenues .................. 100 100
Direct vehicle and operating expenses ...... 11.8 9.1
Cost of car sales ........................... 19.1 27.1
Vehicle depreciation expense ................ 23.0 17.9
Non-vehicle depreciation expense ............ 1.3 0.8
Advertising, promotion and selling .......... 9.1 7.0
Facilities .................................. 9.3 6.6
Personnel ................................... 20.2 16.3
General and administrative expenses ........ 4.0 3.4
Amortization of franchise rights ............ 0.5 0.7
-------- -------
Operating income ............................ 1.7 11.0
Vehicle interest expense ................... 11.7 8.5
Non-vehicle interest expense (income), net 1.5 (.07)
Nonrecurring income ........................ -- --
-------- -------
Income (loss) before income taxes ........... (8.5) 3.2
Provision (benefit) for income taxes ....... (3.4) 1.3
-------- -------
Net income (loss) ........................... (5.1)% 1.9%
======== =======
</TABLE>
24
<PAGE>
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995.
General Operating Results. Net income of $.18 per share for the first
quarter of 1996 represented a $0.37 per share increase from the net loss of
$0.19 per share experienced in the first quarter of 1995. Income before
income taxes increased $4.0 million from a $1.9 million loss in the first
quarter of 1995 to $2.1 million of income in the first quarter of 1996. This
increase was due to the Company's February 1996 acquisitions of the Budget
franchise for Phoenix and of Van Pool and the October 1995 acquisition of the
Budget franchise for Los Angeles, which contributed combined pre-tax income
of $2.9 million to the Company, and decreased vehicle depreciation of $1.1
million resulting from incentives received from car manufacturers. Operating
income increased to $7.3 million in the first three months of 1996 as
compared to $0.4 million in the corresponding period of 1995. The increase in
operating income was somewhat offset by an increase in interest expense of
$2.8 million, or 125%, due primarily to an increase in the vehicle fleet
resulting from the acquisitions of the Phoenix and Los Angeles Budget
franchises and Van Pool, and an increase in the provision for income taxes of
$1.6 million due to the enhanced profitability of the Company in 1996.
Operating Revenues. Vehicle rental revenues increased $27.3 million, or
158%, to $44.7 million in the first three months of 1996 as compared to $17.4
million in the corresponding period of 1995. The increase in rental revenues
is due primarily to the increase in the size of the Company from operating 85
rental locations in eight franchise areas at March 31, 1995 to operating 157
locations in 13 franchise territories at March 31, 1996 and to the
acquisition of Van Pool in February 1996. This increased size resulted in an
increase in the number of rental revenue days from 438,000 in the first
quarter of 1995 to 955,000 days in the first quarter of 1996. The daily
average rental rate increased 3.1% from $39.67 in the first quarter of 1995
to $40.89 for the first quarter of 1996. The average rental term increased
from 3.63 days in the first three months of 1995 to 4.02 days in the
comparable period of 1996. Vehicle rental revenues also increased in the
first quarter of 1996 due to the inclusion of $5.7 million of revenues earned
by Van Pool since its acquisition. Revenues from the Company's retail car
sales operations increased $16.2 million from $4.9 million in 1995 to $21.1
million in 1996, due to the expansion of the Company's retail car sales
facilities from two locations at March 31, 1995 to seven locations at March
31, 1996.
Operating Expenses. Operating expenses increased approximately $36.6
million, or 167%, to $58.5 million for the three months ended March 31, 1996
as compared to $21.9 million for the same period in 1995. The growth of the
Company's vehicle rental operations through the acquisitions discussed above
was the principal cause of all of the increases to the Company's operating
expenses. Vehicle depreciation increased approximately $6.7 million, or 130%,
due to an increase in fleet of 6,300 vehicles which increased vehicle
depreciation by approximately $7.7 million, net of a reduction in vehicle
depreciation of approximately $1.0 million resulting from incentives received
from car manufacturers. Personnel costs increased approximately 138% in the
first quarter of 1996 as compared to the corresponding period of 1995 due to
an increase of approximately 900 employees since March 31, 1995. Advertising
expenses increased from $2.0 million to $4.3 million due to the increase in
the size of the vehicle rental operations and due to the growth of the retail
car sales operations from two markets at March 31, 1995 to six markets at
March 31, 1996. The retail car sales business typically incurs greater
advertising expense than the car rental business. Facilities expense
increased $2.3 million, or 108%, due to the addition of 72 locations since
March 31, 1995. Other operating expense increases were due to the increased
volume of vehicle rental business resulting from the 1995 and 1996
acquisitions. Cost of car sales increased $13.6 million from $4.2 million at
March 31, 1995 to $17.8 million at March 31, 1996 due to an increase in the
number of car sales facilities from two to seven during that period.
Other Income and Expense. Vehicle interest expense, net, increased
approximately $3.0 million in the first quarter of 1996 due to the increase
in the size of the Company's rental fleet from approximately 6,300 vehicles
at March 31, 1995 to approximately 12,600 vehicles at March 31, 1996. The
Company's cost of funds decreased approximately 0.6% per annum in the first
quarter of 1996 as compared to the first quarter of 1995, due primarily to
the decrease in LIBOR, upon which most of the Company's debt is based. Other
interest income, net of interest expense, increased from approximately
$333,000 in the first quarter of 1995 to $495,000 in 1996 due primarily to
increased interest income earned on restricted cash
25
<PAGE>
during the first quarter of 1996. This was partially offset by an increase in
interest expense due to an increase in the Company's borrowings under its
working capital facilities from $7.0 million at March 31, 1995 to $20.0
million at March 31, 1996, due primarily to borrowings to fund the Los
Angeles Acquisition and the Phoenix Acquisition.
Provision for income taxes. The provision for income taxes increased $1.6
million from a $765,000 benefit for the first quarter of 1995 to a provision
of $851,000 for the first quarter of 1995. The $1.6 million change represents
a 40% tax provision resulting from the enhanced profitability of the Company.
Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994.
General Operating Results. Net income for 1995 increased $87,000, or
34.8%, to $337,000 from $250,000 in 1994. Income before income taxes more
than doubled to $1.0 million in 1995 from $426,000 in 1994. The increase in
pre-tax income was due to an increase in operating income of $10.0 million
resulting from the growth of the Company's retail car sales operations from
one facility at December 31, 1994 to seven facilities at December 31, 1995
and the acquisition of four additional Budget vehicle rental operations,
which was offset by increases in interest expense of $9.4 million, due
primarily to the increased size of the fleet throughout 1995 as a result of
the acquisitions occurring between August 1994 and October 1995 described
above. The provision for income taxes increased from $176,000 in 1994 to
$685,000 in 1995 due to the enhanced profitability of the Company,
nondeductible amortization expense, and state income taxes.
Operating Revenues. Operating revenues increased 287% for the year ended
December 31, 1995 to $149.7 million from $38.6 million in the prior year.
This increase was primarily due to the acquisitions discussed above and to an
increased volume of vehicle rental business in 1995, resulting in an increase
in the number of rental revenue days to 2,590,000 in 1995 from 1,027,000 in
1994. The daily average rental rate increased 11% from $37.32 in 1994 to
$41.26 in 1995; the average rental term experienced a slight decrease from
3.82 days in 1994 to 3.76 days in 1995.
Operating Expenses. Operating expenses increased approximately $101.1
million, or 294%, for the year ended December 31, 1995 as compared to 1994.
This increase was due in large measure to the growth of the Company's retail
car sales operations, which included $38.0 million of cost of sales for which
there was no significant comparable expense in 1994, as well as to increases
resulting from the increase in fleet and personnel due to the four
acquisitions occurring during 1995. Direct vehicle and operating expense
increased $4.3 million or 45.2% to $13.7 million from $9.4 million, due to
the increase in the size of the fleet from 5,044 vehicles at December 31,
1994 to 11,143 vehicles at December 31, 1995. The increased costs for vehicle
maintenance recorded to direct vehicle and operating expenses were partially
offset by a decrease in the number of leased vehicles during the period, as
expenses for owned vehicles are charged to both vehicle depreciation and
interest expense, whereas leased vehicles are charged to direct vehicle and
operating expense. Vehicle depreciation expense increased $20.1 million or
272% to $27.5 million due to an increase in fleet size of 121% to 11,143
vehicles at December 31, 1995. Personnel expenses increased 208% to $24.5
million due to the 226% increase in the employee base from 525 employees at
December 31, 1994 to 1,709 employees at December 31, 1995. The number of
locations from which the Company rented vehicles increased from 63 locations
at December 31, 1994 to 133 locations at December 31, 1995.
Other Income and Expense. Other expense-net increased approximately $9.4
million, or 249%, in 1995 due primarily to interest expense on the increased
vehicle fleet operated by the Company in 1995. Vehicle interest increased
$10.0 million due to the increased size of the vehicle fleet throughout 1995.
This increase was offset by an increase in interest income earned on cash
restricted for acquiring vehicles under the Fleet Financing Facilities of
$0.7 million.
Provision for Income Taxes. The provision for income taxes increased 289%
to $685,000 in 1995 from $176,000 in 1994. The Company's effective tax rate
increased from 41.3% in 1994 to 67.0% in 1995. The increase in the tax
provision was due to the enhanced profitability of the Company in 1995,
certain amortization expense that was not deductible for income taxes
purposes, and state income taxes.
26
<PAGE>
Year Ended December 31, 1994 Compared to the Year Ended December 31, 1993.
General Operating Results. Income (loss) before income taxes increased to
$426,000 in 1994 from a loss of $413,000, exclusive of the $1.0 million in
nonrecurring income from a vehicle manufacturer in 1993. The 1994
acquisitions and the Company's strategy to reduce financing costs through the
First Fleet Financing Facility had a favorable impact on income before income
taxes for the year ended December 31, 1994. Operating income for 1994
increased $1.7 million due to the 1994 acquisitions. Interest expense, net of
interest income, increased in 1994 by $907,000 due to the larger fleet
relative to 1993. This increase was offset in part by lower effective
interest rates from the First Fleet Financing Facility.
Operating Revenues. Operating revenues increased 73.1% for the year ended
December 31, 1994 to $38.6 million from $22.3 million in the prior year.
These increases were primarily due to the acquisitions in August and November
1994 discussed above and an increased volume of rental business in 1994,
resulting in an increase in the number of rental revenue days to 1,027,000 in
1994 from 656,000 in 1993. The daily average rental rate increased from
$34.02 in 1993 to $35.01 in 1994, which was partially offset by a decrease in
the average rental term from 4.02 days in 1993 to 3.82 days in 1994.
Operating Expenses. Operating expenses increased approximately $14.6
million, or 73.3%, for the year ended December 31, 1994 as compared to 1993.
This increase was primarily due to the 1994 acquisitions. Direct vehicle and
operating expense increased $4.0 million or 73.1% to $9.4 million from $5.5
million due to an increase in the volume of business from the 1994
acquisitions and an increase in the number of leased vehicles during the
year. Expenses for owned vehicles are charged to both vehicle depreciation
and interest expense, whereas leased vehicles are charged to direct vehicle
and operating expense. Vehicle depreciation expense increased $3.0 million or
69.4% to $7.4 million due to an increase in fleet size of 151.4% from 2,006
vehicles at December 31, 1993 to 5,044 vehicles at December 31, 1994.
Personnel expenses increased 75.2% to $7.9 million due to the 232% increase
in rental car locations from 19 locations at December 31, 1993 to 63
locations at December 31, 1994.
Other Income and Expense. Other expense-net increased approximately $1.9
million for the year ended December 31, 1994 due to the absence of $1.0
million of nonrecurring income in 1994 as discussed above and the additional
fleet financing costs from the increased number of vehicles in the fleet. The
increases were offset in part by the decreased interest costs under the First
Fleet Financing Facility and the repayment in August 1994 of all notes
outstanding to certain related parties. The interest savings under the First
Fleet Financing Facility resulted in increased vehicle interest costs, net of
interest income on restricted cash, of only 31.6% in 1994 as compared to
1993, significantly less than the 69.4% increase in vehicle depreciation
expense that resulted from the same fleet acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's operations have been funded by cash provided
from operating activities and by financing provided under asset-backed notes
issued under the First and Second Fleet Financing Facilities and by banks,
automobile manufacturers' captive finance companies and leasing companies.
The Company intends to continue to fund its operations through these sources
and other similar sources and from the proceeds of the Offering and the Third
Fleet Financing Facility.
Fleet Financing Facilities. At March 31, 1996, amounts outstanding under
the Fleet Financing Facilities were comprised of $105.7 million of
asset-backed notes issued by the Company's special purpose finance
subsidiary, TFFC, in August 1994 (the "First Fleet Financing Facility") and
$40.0 million of asset-backed notes assumed by the Company in connection with
the Los Angeles Acquisition in October 1995 (the "Second Fleet Financing
Facility"). These facilities have been utilized to finance vehicles eligible
for certain manufacturers' guaranteed repurchase programs. Proceeds from
these facilities that are temporarily unutilized for vehicle financing are
maintained in restricted cash accounts with the trustee and are not available
for other purposes. The notes issued under these facilities are
collateralized by the secured vehicles and the restricted cash accounts, with
the vehicles being leased to the Company's operating subsidiaries.
The First Fleet Financing Facility is comprised of senior notes requiring
monthly interest payments at average LIBOR, as defined, plus 0.75% (6.2% at
March 31, 1996). Monthly principal payments of
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<PAGE>
$16,667,000 commence in June 1999 with the last payment due in November 1999.
The subordinated notes require monthly interest payments at average LIBOR, as
defined, plus 1.30% per annum (6.7% at March 31, 1996) and are payable in
full in December 1998.
The Second Fleet Financing Facility is comprised of senior notes requiring
monthly interest payments at an average LIBOR, as defined, plus 0.60% (6.0%
at March 31, 1996). Monthly principal payments of $4,812,000 commence in
November 1997 with the last payment due in June 1998. The subordinated notes
require monthly interest payments at average LIBOR, as defined, plus 1.0% per
annum (6.4% at March 31, 1996) and are payable in full in December 1998.
Subject to and concurrently with the completion of the Offering, TFFC will
enter into the Third Fleet Financing Facility. The Third Fleet Financing
Facility will consist of approximately $162.5 million of asset-backed notes.
The net proceeds of the Third Fleet Financing Facility will be used to repay
outstanding vehicle obligations (as described below) relating to
approximately 10,000 vehicles for the Company's fleet.
Vehicle obligations. Vehicle obligations consist of outstanding lines of
credit to purchase rental vehicles and retail car sales inventory. At March
31, 1996, amounts outstanding under these lines of credit consisted of $200.0
million for rental vehicles and $25.7 million for retail car sales inventory,
with maturity dates ranging from April 1996 to April 1997. Vehicle
obligations are collateralized by rental vehicles financed under these credit
facilities and proceeds from the sale, lease or rental of vehicles and retail
car sales inventory.
Vehicle obligations relating to the rental fleet are generally amortized
over 5 to 15 months with monthly principal payments ranging from 2% to 3% of
the capitalized vehicle cost. When rental vehicles are sold, the related
unpaid obligation is due. Interest payments for rental fleet facilities are
due monthly at annual interest rates ranging from 6.8% to 15.25% at March 31,
1996. Management expects vehicle obligations will generally be repaid within
one year with proceeds received from either the repurchase of the vehicles by
the manufacturers in accordance with the terms of the manufacturers' rental
fleet programs or from the sale of the vehicles.
Monthly payments of interest only on obligations relating to retail car
sales inventory are required at the prime rate (8.25% at March 31, 1996).
Retail car sales inventory obligations are paid when the inventory is sold
but in no event later than 120 days after the date of purchase.
Working capital facilities. At March 31, 1996, the Company utilized
working capital facilities of $20.0 million for the purchase of retail car
sales inventory and other working capital requirements, which require monthly
interest payments on the outstanding balance at LIBOR plus 1.85% (7.2% at
March 31, 1996). The amount utilized under these facilities had increased to
$30.0 million at April 30, 1996, with the additional $10.0 million utilized
to repay other outstanding notes (as described below). An outstanding
facility of $17.0 million is due on May 27, 1996 and the Company expects to
extend such maturity date; the remaining balance expires November 1996. The
facilities are collateralized by accounts receivable, inventory, equipment,
general intangibles, investments and all other personal property of the
Company and guarantees of the Company's subsidiaries. Under the terms of one
of the agreements, the Company is required to pay commitment fees quarterly
equal to 0.125% per annum on the maximum amount of credit available under the
credit facility and an annual agent fee of $50,000 as long as the facility
has an outstanding balance. This agreement is subject to certain covenants,
the most restrictive of which requires the Company to maintain certain
financial ratios and minimum tangible net worth and prohibits the payment of
cash dividends. At March 31, 1996, the Company was not in compliance with
certain covenants under these facilities. In April 1996, certain covenants
were amended and the Company is in compliance with the amended terms of the
agreement.
Other notes payable. Other notes payable at March 31, 1996 consisted
primarily of a $3.0 million secured promissory note that bears interest at 8%
per annum payable in annual installments of $750,000, due August 1999,
collateralized by personal guarantees from the previous owners of Los Angeles
operations; a $0.6 million business credit note due November 1996 bearing
interest at prime (8.25% at March 31, 1996) collateralized by real estate
property and secured by personal guarantees of certain
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<PAGE>
stockholders of the Company; a $0.7 million collateralized promissory note
that bears interest at 8% per annum, payable in monthly installments of
$7,000 plus interest, due September 2010, collateralized by real estate
property and personal guarantees of certain stockholders of the Company; a
$2.0 million mortgage note bearing interest at 9.10% per annum, payable in
monthly installments ranging from $5,400 to $7,800 plus interest, due
September 2000 with an option to extend to September 2005, collateralized by
real estate property; and a $0.6 million mortgage note bearing interest at
7.5% per annum, payable in monthly installments of $8,300 plus interest, due
June 1998, collateralized by real estate property.
INFLATION
The increased acquisition cost of vehicles is the primary inflationary
factor affecting the Company's operations. Many of the Company's other
operating expenses are inflation sensitive, with increases in inflation
generally resulting in increased costs of operations. The effect of
inflation-driven cost increases on the Company's overall operating costs are
not expected to be greater for the Company than for its competitors.
SEASONALITY
Generally, in the vehicle rental industry, revenues decrease in the winter
months (with the exception of resort destinations) due to the overall
decrease in business and leisure travel during this season. The Company
increases the size of its fleet and work force in the spring and summer to
accommodate increased rental activity during these periods and decreases its
fleet and work force in the fall and winter. However, many of the Company's
operating expenses such as rent, insurance and administrative personnel are
fixed and cannot be reduced during the fall and winter. The Company has
sought to moderate this seasonal effect by acquiring franchise territories
that are winter travel destinations, and the Company believes that its
acquisitions of the Los Angeles operation in October 1995 and the Phoenix
operation in February 1996 have and will continue to reduce these seasonal
characteristics.
QUARTERLY RESULTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-------------------------------
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
--------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Vehicle rental revenue ............ $5,525 $5,854 $11,634
Vehicle sales revenue ............. -- -- --
Operating income .................. 268 599 1,341
Income (loss) before income taxes (282) 55 268
Net income (loss) ................. (282) 55 268
Earnings (loss) per common share . $(0.11) $ 0.02 $ 0.06
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED DECEMBER 31, 1995 ENDED
MARCH 31,
------------------------------------------ 1996
FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Vehicle rental revenue ............ $15,457 $17,354 $23,788 $29,677 $36,248 $44,697
Vehicle sales revenue ............. 172 4,916 8,534 12,706 16,506 21,097
Operating income .................. 1,988 372 4,034 8,402 1,372 7,254
Income (loss) before income taxes 385 (1,911) 1,241 4,788 (3,096) 2,128
Net income (loss) ................. 209 (1,146) 743 3,981 (3,241) 1,277
Earnings (loss) per common share . $ 0.04 $ (0.19) $ 0.12 $ 0.65 $ (0.42) $ 0.18
</TABLE>
29
<PAGE>
BUSINESS
Team Rental Group, Inc. is the largest Budget franchisee worldwide and is
one of the largest independent retailers of late model automobiles in the
United States. In 1994, TEAM embarked on a strategy to significantly expand
its Budget franchise base and to develop a retail car sales operation within
its Budget franchise territories. This strategy leverages management's
experience and creates certain operating efficiencies between these
complementary businesses. Through its 158 vehicle rental locations, TEAM had
pro forma 1995 revenues of $203.5 million, and the Company operates nine
retail car sales facilities with monthly sales revenue of $10.2 million for
April 1996. The Company estimates it will purchase approximately 40,000
vehicles over the next twelve months, consisting of new automobiles and
trucks for its Budget rental operations, late model automobiles for its
retail car sales operations and new passenger vans for its van pooling
operations.
Since its initial public offering in August 1994, the Company has pursued
an aggressive growth strategy in both vehicle rental operations and retail
car sales. TEAM has added nine Budget franchise territories with 133 current
locations to the four territories that it operated at the time of its initial
public offering, thereby enhancing the economies of scale in its operations,
balancing its geographic scope and reducing seasonal fluctuations in its
performance. Concurrently, the Company has developed or acquired its first
nine retail car sales facilities--all currently within its Budget
territories--and now expects to significantly expand by adding facilities in
(i) its seven existing car sales markets, (ii) the Budget territories where
it does not currently have retail car sales operations and (iii) markets
beyond its franchise territories.
The following tables describe TEAM's acquisitions of Budget franchises and
openings of retail car sales facilities:
VEHICLE RENTAL -- BUDGET FRANCHISE ACQUISITIONS
<TABLE>
<CAPTION>
1995
LOCATIONS AT FLEET SIZE AT REVENUES
FRANCHISE TERRITORY DATE ACQUIRED APRIL 30, 1996 APRIL 30, 1996 (MILLIONS)
- -------------------- --------------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
Prior to August 1994
San Diego ........... April 1987 13 1,683 $ 18.6
Albany .............. August 1991 3 236 2.5
Rochester ........... November 1991 3 209 2.5
Richmond ............ December 1991 6 329 3.6
-------------- -------------- ----------
Total for franchises owned prior to
initial public offering ............ 25 2,457 27.2
Since August 1994
Philadelphia ........ August 1994 16 1,695 21.0
Pittsburgh .......... August 1994 13 921 13.0
Cincinnati .......... August 1994 7 653 8.0
Fort Wayne .......... November 1994 3 180 1.7
Charlotte ........... January 1995 8 567 6.5
Dayton .............. January 1995 7 460 5.2
Hartford ............ March 1995 13 871 9.6
Los Angeles ......... October 1995 45 5,086 63.4
Phoenix ............. February 1996 21 3,690 42.9
-------------- -------------- ----------
Total for franchises acquired since
initial public offering ............ 133 14,123 171.3
-------------- -------------- ----------
Total ................................ 158 16,580 $198.5
============== ============== ==========
</TABLE>
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<PAGE>
RETAIL CAR SALES -- FACILITIES OPENED
<TABLE>
<CAPTION>
APRIL 1996
DATE ACQUIRED/ APRIL 1996 SALES REVENUE
METROPOLITAN AREA OPENED VEHICLES SOLD (THOUSANDS)
- ----------------- -------------- --------------- ---------------
<S> <C> <C> <C>
San Diego--East . November 1994 98 $ 1,814
Dayton--North ... January 1995 61 909
San Diego--West . April 1995 66 914
Philadelphia ..... May 1995 101 1,669
Charlotte ........ September 1995 82 1,941
Richmond ......... October 1995 59 1,441
Ontario .......... October 1995 61 1,303
Cincinnati ....... April 1996 13 169
Dayton--South ... April 1996 -- --
--------------- ---------------
Total ........... 541 $10,160
=============== ===============
</TABLE>
STRATEGY
The Company's strategy is to enhance its revenues and profitability by:
o Significantly expanding its retail car sales operations;
o Acquiring additional Budget franchises; and
o Enhancing the profitability of its Budget franchises.
Significantly Expand Retail Car Sales Operations
The increased cost of new cars and the improved reliability of
low-mileage, late model cars have contributed to greater market demand for
late model cars in recent years. Notwithstanding this growth, the retail car
sales market remains highly fragmented, with most late model cars being sold
through the used car operations of local or regional new car dealerships. The
Company believes that the market for late model cars is currently undergoing
significant changes, with the emergence of companies retailing late model
cars on a national or regional basis and utilizing a nationally or regionally
recognized tradename. Such entities source cars on a nationwide basis and
provide customers with a large selection of attractively priced, late model
cars.
The Company believes that operating retail car sales facilities in its
Budget franchise territories and using the Budget tradename presents it with
a significant growth opportunity. The Company's senior executive officers
have significant experience in sourcing and re-selling low-mileage, late
model cars, and the Company believes that the Budget tradename is of
significant value in its targeted consumer market. The Company believes that
it will be able to obtain efficiencies by operating retail car sales
facilities in conjunction with certain of its Budget rental facilities,
including the sharing of service facilities and administrative offices. The
Company also believes that operating retail car sales facilities complements
certain aspects of its vehicle rental business, particularly by providing a
channel through which it will be able to sell its vehicles not subject to
manufacturers' repurchase programs directly into the retail market at the end
of the rental cycle. By developing this channel, the Company believes that it
will be less dependent on the availability of manufacturers' repurchase
program vehicles.
Since November 1994, the Company has developed or acquired its first nine
retail car sales facilities, and the Company will seek to continue to improve
the operating performance of each of those facilities. Rather than pursuing a
"superstore" strategy, the Company expects to have multiple sales facilities
in each of its markets and to add facilities within its franchise
territories. This approach will provide more convenient locations for
customers, while allowing the Company to achieve certain operating
efficiencies and to benefit from marketing and advertising programs conducted
for its vehicle rental business. The Company also expects to add facilities
in markets where it does not currently have vehicle rental operations.
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<PAGE>
Acquire Additional Budget Franchise Territories
Since the formation of the Company, the acquisition of additional Budget
franchises has been an important component of the Company's growth strategy.
The Company believes that through the acquisitions completed since its
initial public offering, it has achieved a sufficient size to realize
operating efficiencies in its rental operations, improved its geographic
balance and reduced seasonal fluctuations in its performance. The Company
will seek to increase its revenues and profitability through additional
opportunistic acquisitions, and believes that desirable acquisition
candidates will continue to exist within the Budget System. Individual
franchise owners may seek to diversify their financial investment or to
retire from active management, particularly as they encounter greater cost
pressures as well as other competitive pressures in their operations. While
the Company would consider the acquisition of franchise territories in most
regions of the United States, there may be greater opportunities to achieve
additional operating efficiencies by acquiring franchise territories adjacent
to or near its existing territories. For example, the Company may be able to
achieve better fleet utilization in the operation of nearby franchise
territories.
Prior to being acquired by TEAM, a number of the Company's franchises had
either been unprofitable or had inconsistent profitability. It is in the best
interests of BRAC for its franchises to be operated profitably and in a
manner that will result in increased franchise fees to BRAC. The transfer of
any Budget franchise requires the prior approval of BRAC, and BRAC may itself
acquire franchise operations and convert them to wholly-owned operations. See
"Risk Factors--Risks Inherent in Growth Strategy." The Company believes that
it has been successful in acquiring and operating these "turn around"
franchises and that both the Company and BRAC have benefited from the
improved results achieved by the franchises acquired by the Company.
Enhance Profitability of its Budget Franchises
The Company believes that it will be able to enhance the profitability of
its existing Budget franchises and any additional Budget franchises that it
may acquire by reducing the costs of operating those franchises and
increasing the rental revenues realized in those operations.
Cost Reduction Strategies
o Achieve Economies of Scale. The Company believes that by increasing the
scope of its vehicle rental operations, it has significantly improved its
fleet purchasing flexibility and lowered the cost of financing and insuring
its fleet. Through centralizing certain corporate functions, such as credit
card and warranty processing, the Company is also able to reduce the costs of
operating its Budget franchises. The Company believes that the benefits of
such measures are particularly significant following the acquisition of
franchises that have been underperforming prior to their acquisition by the
Company, although certain economies of scale may be extended to any operation
that the Company acquires.
o Optimize Fleet Utilization and Mix. The Company believes that it has
been able to reduce the cost of its rental operations by extending its fleet
management practices to newly-acquired franchise territories. The Company
believes that it will continue to improve its fleet utilization and per unit
cost versus yield. In addition, the Company believes it has improved the
timing and processing of its fleet deliveries and deletions, reduced fleet
downtime and improved fleet make/model composition to match customer demand.
o Implement Cost Management Practices. The Company seeks to implement
standard cost management practices in each of its franchised territories.
Historically, following the acquisition of a territory, the Company has
successfully reduced overall personnel cost, lowered vehicle maintenance and
damage repair costs and increased the effectiveness of its servicing
procedures.
Revenue Growth Strategies
o Optimize Yield Management. TEAM utilizes various yield management models
designed to optimize pricing based upon such factors as office location,
fleet availability by car category and forecast demand patterns. These models
also enable TEAM to better optimize fleet utilization by tracking demand
patterns and allowing local managers to shift inventory accordingly.
32
<PAGE>
o Add New Locations. In 1995, on a pro forma basis, approximately half of
the Company's vehicle rental revenues were generated at airport locations and
approximately half at non-airport locations. The Company believes that it
will be able to improve its performance by adding additional locations in its
existing and newly-acquired franchise territories (particularly by adding
non-airport locations), and that additional revenues may be generated with
relatively small increases in administrative overhead. Non-airport locations
are particularly attractive to the Company, as such locations typically have
less intense rate competition and fewer corporate customers utilizing
negotiated rate structures and are typically less affected by economic
downturns.
o Increase the Sale of Ancillary Products/Truck Revenues. The Company
seeks to increase rental revenues in its Budget franchise territories through
increased emphasis on the sale of ancillary products and services, including
loss damage waivers, other insurance products and gasoline purchase options.
TEAM has implemented specific training and compensation programs to encourage
its employees as part of effecting this strategy. The Company intends to
continue to market more diverse car products at additional locations. The
Company believes that it can also increase its revenues in local markets by
placing an increased emphasis on truck rentals, which also involve rentals of
miscellaneous moving equipment and sales of moving supplies.
VEHICLE RENTAL OPERATIONS
The Budget System
General. The Budget System consists of over 3,200 BRAC-owned and
franchised locations in approximately 115 countries and territories.
Approximately one-third of the Budget System's U.S. fleet is operated by
franchisees. BRAC was established in 1960 as a franchisor of vehicle rental
operations serving the downtown and suburban areas of cities in the United
States and Canada. The first major airport location of the Budget System was
established in 1967. Since 1989, Ford has held a preferred stock interest in
the holding company that owns BRAC and has provided significant financial
support to BRAC. In 1995, the Budget System's combined revenue for both
BRAC-owned and franchised locations in the U.S. was approximately $2.0
billion. An industry source has indicated that Budget was the fourth largest
U.S. vehicle rental system in 1995 based on revenue and the fifth largest
based on fleet size.
System-Wide Services. BRAC provides the Budget System with: (i) national
promotion, advertising and public relations; (ii) reservations and
information systems; (iii) data processing support; (iv) marketing programs
with hotels and airlines; (v) Sears Car and Truck rental concessions; (vi) a
sales staff for marketing to corporate customers and the travel community;
(vii) credit card services for commercial customers; (viii) training in local
marketing techniques; and (ix) operation and training support. In general,
pursuant to its agreements with its franchisees, BRAC is required to expend a
certain percentage of franchise royalties that it receives on national
advertising and promotion. In addition, BRAC negotiates with automobile
manufacturers to develop vehicle acquisition and disposition programs that
are available to franchisees as well as to BRAC-owned locations.
BRAC facilitates one-way car rentals between approximately 735 selected
BRAC-owned and franchised locations in the United States. This one-way
program is also in place for truck rentals at approximately 325 locations. A
limited fleet of vehicles owned by BRAC is dedicated to supplement the
one-way vehicle rental capacity of the participating locations, including the
Company's franchise operations. This program enables the Budget System to
operate more fully as an integrated network of locations.
Reservations. BRAC, in conjunction with its 50%-owned subsidiary, Compass
Computer Services, Inc. ("Compass"), operates a computerized reservation
system. Budget's main reservation facility is located in the Dallas
metropolitan area and has over 400 employees. Auxiliary centers are located
in Toronto, Canada, the United Kingdom, Australia and New Zealand. These
centers are linked with the major airline and travel industry reservation
systems through the worldwide Budget reservation network. The main
reservation facility accepts inquiries and reservations for Budget System
locations worldwide on
33
<PAGE>
a 24-hour basis, 365 days a year. The reservation centers utilize an
extensive data base maintained by Compass on rates and vehicles available for
nearly all Budget System locations, a special file of pertinent information
on frequent renters and other information that facilitates the Budget
System's business.
Sears Car and Truck Rental. In 1970, BRAC established a contractual
relationship with Sears, Roebuck and Co. which allows Budget operating
locations to provide car and truck rental under the Sears name for a
concession fee based on rental revenue. Sears Car and Truck Rental customers
may use their Sears charge card for payment of rental charges. Sears Car and
Truck Rental is available at Budget locations in the United States and
Canada.
TEAM's Vehicle Rental Operations
Management Structure. The Company maintains decentralized management of
day-to-day rental operations. Many costs incurred by the Company are
dependent on local market conditions, including real property rents,
collision and damage repair costs and labor costs. The Company believes that
decentralized management can manage these costs better than corporate
headquarters' staff. Decentralization also allows local management to
continue to identify potential customer bases in their territories, to
respond to competitive situations within their territories in a flexible way
and to adjust fleet size as appropriate to local market conditions.
Consequently, the Company relies substantially on the quality and initiative
of its local management. Each of the Company's territories is under the
direction of a general manager, who is an owner of shares of Class A Common
Stock and/or a participant in the Company's Incentive Stock Option Plan (the
"1994 Option Plan"). See "Management--Benefit Plans--1994 Option Plan." The
general managers employed by the Company generally have significant
experience in the vehicle rental business.
The Company coordinates vehicle purchases among its franchised territories
to enable it to benefit from volume purchases of vehicles. The Company
handles billing and collection on a decentralized basis, but employs
centralized cash management to permit optimal use of its financial resources.
The Company's corporate staff manages the acquisition and financing of new
franchises and general managers develop local vehicle rental markets.
Rental Vehicle Purchasing. The Company participates in a variety of
vehicle purchase programs with major domestic and foreign manufacturers,
although actual purchases are made directly through local dealers. The
average price for automobiles purchased by the Company in 1995 for its rental
fleet was approximately $17,700. On average during 1995, 42% of the purchases
were comprised of Ford vehicles, 15% of Chrysler vehicles and 21% of Mazda
vehicles. These percentages vary among the Company's operations and will most
likely change from year to year. The vehicle purchase programs sponsored by
manufacturers sometimes provide the Company with sales incentives for the
purchase of certain models, and most of these programs allow the Company to
serve as a drop-ship location for vehicles, thus enabling the Company to
receive a fee from the manufacturers for preparing newly purchased vehicles
for use. There can be no assurance that the Company will continue to be able
to benefit from sales incentives in the future.
The Company financed its rental vehicle purchases in 1995 primarily
through the First Fleet Facility, manufacturers' finance subsidiaries and,
during the peak rental season, bank lines of credit. Approximately 24% of the
Company's fleet cost was financed through the First Fleet Facility at
December 31, 1995. The Company expects to continue to take advantage of
structured finance facilities, which have more attractive interest rates, to
finance future fleet purchases. The Company financed fleet purchases in
connection with the Los Angeles Acquisition through the Second Fleet
Facility. In addition, the Company will seek to continue its arrangements
with the finance subsidiaries of major vehicle manufacturers and other
traditional sources of credit. See "Risk Factors--Potential Changes in
Manufacturers' Repurchase Programs" and "Risk Factors--Requirements for
Additional Capital."
Fleet Utilization and Seasonality. The Company's business is subject to
seasonal variations in customer demand, with the summer vacation period
representing the peak season for vehicle rentals. This general seasonal
variation in demand, along with more localized changes in demand at each of
the Company's operations, causes the Company to vary its fleet size over the
course of the year. In 1995, on
34
<PAGE>
a pro forma basis (excluding Phoenix and Van Pool), the Company's average
monthly fleet size ranged from a low of 12,316 vehicles in January to a high
of 16,450 vehicles in July. Fleet utilization, which is based on the average
number of days vehicles are rented compared to the total number of days
vehicles are available for rental, ranged from 70% in December to 89% in
August and averaged 80% for all of 1995. The Company has sought to reduce
this seasonal fluctuation by acquiring franchise territories that are winter
travel destinations, and the Company believes that acquisitions of the Los
Angeles operation in October 1995 and the Phoenix operation in February 1996
have reduced and will continue to reduce the effect of these seasonal
characteristics.
Rental Vehicle Disposition. The Company's current operating strategy is to
maintain its fleet at an average age of 12 months or less. Approximately 80%
of the vehicles purchased by the Company in 1995 were eligible for
participation in manufacturers' repurchase programs. These programs currently
require that the Company maintain Program Vehicles in its fleet for a minimum
of six months and impose numerous return conditions, including those related
to mileage and repair condition. Less than 3% of the Program Vehicles
purchased by the Company and scheduled to be returned in 1995 were ineligible
for return. At the time of return to the manufacturer, the Company receives
the price guaranteed at the time of purchase and is thus protected from
fluctuations in the prices of previously-owned vehicles in the wholesale
market at the time of disposition. The future percentage of Program Vehicles
in the Company's fleet will be dependent on the availability and
attractiveness of the manufacturers' repurchase programs, over which the
Company has no control. See "Risk Factors--Potential Changes in
Manufacturers' Repurchase Programs." In addition to disposal of its vehicle
rental fleet through the manufacturers' repurchase programs, the Company also
disposes of its rental fleet through automobile auctions and sales to
wholesalers and the Company's retail car sales operations. While the disposal
of rental vehicles through the Company's retail car sales operation has been
nominal to date, the Company believes that such dispositions may increase as
its retail car sales operation continues to grow and as the Company evaluates
the mix of its Program Vehicles and vehicles not subject to manufacturers'
repurchase programs.
Vehicle Rental Facilities. The Company leases all of its airport and
non-airport vehicle rental facilities and currently operates from 158 rental
locations. The airport facilities are located on airport property owned by
airport authorities or located near the airport in locations convenient for
bus transport of customers to the airport. One of the Company's airport
facilities in each Budget franchise territory serves as the administrative
headquarters for the franchise territory and, as a general rule, each airport
facility includes vehicle storage areas, a vehicle maintenance facility, a
car wash, a refueling station and rental and return facilities. In all
airport locations, the facility leases are not co-terminus with the local
airport concession agreement. See "Risk Factors--Risk of Non-Renewal of
Airport Concessions." The Company's non-airport facilities generally consist
of a limited parking facility and a rental and return desk and are generally
subject to long-term leases with renewal options. Certain of these leases
also have purchase options at the end of their terms.
Van Pool Operations. Van Pool, the Company's van pooling subsidiary, was
acquired by the Company in February 1996 and maintains offices in 21 cities
located in 15 states and the District of Columbia. Founded in 1977, Van Pool
provides van pooling services to individuals, corporations and
municipalities. Pursuant to van pool agreements between the Company and
either the volunteer driver, corporation or municipality (the "contracting
party"), the contracting party agrees to drive or arrange a van pool which
travels a fixed route set by the Company. The Company sets the fees, which
are collected by the driver and remitted to the Company. Van Pool employs
approximately 40 individuals at its home office in Troy, Michigan and
approximately 40 individuals in its local markets, and currently operates a
fleet of approximately 3,000 passenger vans.
RETAIL CAR SALES OPERATIONS
Since November 1994, TEAM has developed or acquired nine retail car sales
facilities, establishing TEAM as one of the largest independent retailers of
late model cars in the United States, with monthly revenue of $10.2 million
in April 1996.
Retail Car Sales Inventory. The Company has historically acquired most of
its retail car sales inventory at auctions, although it has acquired some
cars upon their disposition by other car rental
35
<PAGE>
companies and the TEAM rental fleet. In the future, the Company expects to
increase its acquisitions of cars from the disposition of cars used by other
car rental companies, and to purchase a smaller portion from auctions. The
Company coordinates car purchases among its retail car sales locations to
enable it to benefit from volume purchases of cars. The average price of
automobiles purchased by the Company in 1995 for its retail car sales
facilities was approximately $11,750. The Company financed its sale car
purchases in 1995 through a third party finance company.
Management and Personnel. The Company maintains decentralized management
of day-to-day sales operations. The Company's retail car sales operations are
managed by two regional vice presidents, each of which is an owner of shares
of Class A Common Stock and/or a participant in the 1994 Option Plan. See
"Management--Benefit Plans--1994 Option Plan." In addition, each retail car
sales location is operated by a general manager, one or two sales managers
and one or two individuals responsible for financing and insurance.
Trademarks. Within its franchised territories, the Company operates its
retail car sales operations under the name "Budget Car Sales." However, BRAC
has indicated that the use of the Budget name in connection with retail
vehicle sales operations is not a contractual right granted under its
standard franchise agreements. The Company's management does not believe that
the success of these operations is dependent on the use of the Budget name
and currently plans to operate under a different name in its franchise
territories, if necessary. The Company also plans to operate under a
different name in those locations in which it is not a Budget franchisee.
Ultimately, the Company will seek to establish retail car sales operations at
multiple sites in larger metropolitan areas and advertise those operations
under one name.
Vehicle Pricing and Financing. While many cars display stickers
indicating their "blue book" value, customers are permitted to negotiate
pricing terms with the sales managers. Various local enterprises provide
financing to customers of the Company on a non-exclusive basis. In 1995, the
vehicles sold at its retail car sales facilities consisted primarily of 1995
model automobiles and passenger vans, with some 1994 models and very few 1993
models. To supplement its sale of vehicles, the Company sells extended
service contracts and related consumer insurance products to its customers.
Retail Car Sales/Service Facilities. Each of the Company's retail car
sales facilities consists of a showroom and an outdoor display area, which
together accommodate the on-site display of at least 100 cars, and a service
area. Although certain of the Company's retail car sales facilities have been
converted from facilities that were used in other businesses, the Company
prefers to build its own retail car sales facilities and believes that such
facilities can be built at an average cost of approximately $1.2 million. The
service departments operated at each retail car sales facility are
responsible for inspecting a car's condition and for providing necessary
reconditioning and maintenance services before sale. These services are
provided uniformly its retail car sales facilities in accordance with an
inspection checklist developed by the Company. Service departments also
provide after-sale service for the Company's customers.
COMPETITION
The vehicle rental industry is characterized by intense price and service
competition. In any given location, the Company may encounter competition
from national, regional and local companies, many of which, particularly
those owned by the major automobile manufacturers, have greater financial
resources than the Company. The Company's main competitors for vehicle
rentals are Hertz, Avis, Alamo, National and Dollar, which serve primarily
airport and near-airport locations, and Enterprise, which serves primarily
non-airport locations. The Company's operations are generally the third or
fourth largest at the airports in which it operates, although its extensive
non-airport operations may give it a larger presence in the metropolitan
regions in which such airports are located. The key competitive factors in
the industry are pricing, quality of service, name identification, vehicle
availability and location. There have been many occasions during the history
of the vehicle rental industry in which all of the major vehicle rental
companies have been adversely affected by severe industry-wide price cutting,
and the Company has, on such occasions, lowered its prices in response to
such price cutting. However, during the past two years, industry-wide rates
have increased, reflecting, in part, both increased costs of owning and
maintaining vehicles and the need to generate returns on invested capital.
36
<PAGE>
The retail car sales business is also characterized by significant
competition from a range of regional and local car dealerships and dealers of
previously-owned vehicles. The Company believes that it competes primarily
against new car dealers retailing previously-owned cars. The Company's retail
car sales facilities are located among similar facilities and, in some
instances, together with the Company's rental operations. The entry of large,
well-capitalized retailers of late model previously-owned cars may provide
the Company with significant additional competition.
FRANCHISE AGREEMENTS
The Company's status as a Budget franchisee is governed by franchise
agreements (the "Franchise Agreements"), which grant to the Company's
subsidiaries certain exclusive territories in which to operate the Budget
vehicle rental business. All of these agreements are direct, "prime"
franchise agreements with BRAC, except those relating to the Company's Los
Angeles and San Diego operations, which operates as a sub-franchisee of
SoCal, and the Company's Los Angeles truck rental operations, which operates
a sub-franchisee of Transportation and Storage Associates, Inc. The Franchise
Agreements provide the franchisor with significant rights regarding the
business and operations of the Company and impose restrictions on the
transfer of ownership of the capital stock of the Company's subsidiaries
without the consent of the franchisor. Specifically, the Franchise Agreements
(except for the Los Angeles operation Franchise Agreement) provide that upon
a proposed sale, assignment or transfer of any operating subsidiary,
including the sale of 33.3% or more of the equity ownership or voting control
or a public or private offering of the voting securities or any interests
convertible into voting securities of any such operating subsidiary or its
parent or subsidiary, the franchisor has the option to purchase such
securities on the same terms and conditions as those of the proposed sale.
Even if the franchisor does not exercise its purchase option, the franchisor
must consent to the sale, assignment or transfer. These provisions could
affect the Company's ability to sell a car rental operating subsidiary or
acquire other franchises.
The Company is required to operate each of its franchises in accordance
with certain standards contained in the Budget operating manual (the
"Operating Manual"). The franchisor has the right to monitor the operations
of the Company's franchises and any default by the Company under any
Franchise Agreement or the Operating Manual would give the franchisor the
right to terminate the franchise governed by such Franchise Agreement. The
loss of certain franchise rights could have a material adverse effect on the
Company.
In general, the Franchise Agreements grant the Company the exclusive right
to operate a Budget Rent a Car and/or Budget Rent a Truck franchise in a
particular geographic area for a period of five years. The Franchise
Agreements for the San Diego, California, Albany and Rochester, New York,
Richmond, Virginia, Philadelphia and Pittsburgh, Pennsylvania, Cincinnati,
Ohio, Ft. Wayne, Indiana, Charlotte, North Carolina, Dayton, Ohio and
Hartford, Connecticut territories generally provide for an unlimited number
of five year renewal terms. Upon renewal, these Franchise Agreements (except
for the San Diego, California automobile rental franchise) may contain terms
and conditions (other than with respect to royalty fees) different from those
contained in the existing Franchise Agreements. The Franchise Agreement for
the Los Angeles, California territory with respect to automobile rentals
automatically renews for an unlimited number of five year terms. The
Franchise Agreement for the Phoenix, Arizona territory automatically renews
for an unlimited number of five year renewal terms as long as the franchisee
meets certain targets regarding its rental fleet size.
The standard terms of the fees payable to the franchisors under the
Company's Franchise Agreements are 7.5% of monthly gross rental revenue and
$1.25 per month credit card fee per average number of fleet vehicles, but the
Company has negotiated certain franchise agreements with more favorable
terms.
Pursuant to each Franchise Agreement, the Company must meet certain
guidelines relating to the number of rental offices in a franchised
territory, the number of vehicles maintained for rental and the amount of
advertising and promotion expenditures. The Franchise Agreements relating to
the Pittsburgh and Philadelphia operations grant the Company rights of first
refusal with respect to the franchise agreements relating to certain
additional territories in Delaware, New Jersey and Pennsylvania. In general,
each Franchise Agreement provides that the Company shall not (i) engage in
any other vehicle
37
<PAGE>
rental business within the franchise territory or within a two mile radius of
any other existing Budget rental location during the term of such agreement
and for 12 months thereafter; or (ii) disclose the Operating Manual or any
other confidential information relating to the Budget System to any third
party. In addition, each franchisee agrees not to use the word "Budget" or
any other Budget trademark other than in its vehicle rental business, except
with respect to the Los Angeles territory. Further, the Company has agreed
with BRAC in the Franchise Agreements for the San Diego, California
automobile rental operations that it will not conduct any business other than
its automobile rental operations at any location at which it conducts Budget
Rent a Car operations and not to conduct a car sales business under the
"Budget" name or on any Budget car rental premises unless authorized to do so
under a separate agreement.
INSURANCE
The Company currently has insurance coverage in an amount of up to $1.0
million, with a $500,000 retention per occurrence with respect to personal
injury and damage claims arising from the use of its vehicles, except with
respect to vehicles rented through its Los Angeles, San Diego and Phoenix
operations. The Company has entered into a contract with a third party
administrator, AIG Claim Service, Inc., to handle all claims outside of the
state of California involving injuries and property damage in excess of
$10,000. Crawford & Company adjusts property damage claims with values less
than $10,000. Under California law, vehicle rental customers are primarily
liable for damages arising from the use of rental vehicles. Vehicle rental
companies are secondarily liable for such damages up to an amount limited by
California law to $35,000 per occurrence (exclusive of legal fees and
conditioned upon the posting of a $35,000 bond), unless the vehicle rental
company has negligently maintained the vehicle or has "negligently entrusted"
the vehicle to a rental customer (e.g., the vehicle rental company rented to
a customer that did not have a valid driver's license). In addition, a
vehicle rental company can be held liable for damages arising from use of its
vehicles by its employees. A recent California Court of Appeals decision,
although not ruling on the issue, has suggested that rental car companies
generally may be subject to primary liability in connection with damages
arising from customers' operation of rental vehicles. If changes in
California law were ever effected to render permissively uninsured rental car
companies primarily liable for such damages, the Company would at such time
review its claims handling practices. The Company's Phoenix operations are
self-insured, with a $300,000 retention. There is a $700,000 excess coverage
policy with Fireman Fund Insurance and a $10 million excess policy through
National Union Fire Insurance Company.
The Company's workers compensation insurance coverage has been placed with
ITT Hartford, subject to a $500,000 retention. All claims will be
administered by ITT Hartford's claims operation. The Company's general
liability coverage has been placed with ITT Hartford. There is $2.0 million
per occurrence in coverage with no retention. The Company's property coverage
has been placed with Northbrook Insurance Company. The retail vehicle sales
operations are insured through Travelers Insurance Company with $1.0 million
aggregate coverage per location. There is a $50,000 retention for automobile
accidents, $15,000 retention for garagekeepers legal liability claims and
$10,000 retention for garage operation losses. All claims will be handled by
a third party administrator, Frontier Adjusters. Finally, the Company has a
total of $5.0 million in directors and officers liability coverage through
Steadfast and RLI Insurance Companies. This coverage is subject to a $1.0
million retention for claims relating to violations under federal securities
laws and $100,000 retention for any other claim.
REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws and regulations
including those relating to taxing and licensing of vehicles, franchising,
consumer credit, environmental protection, retail vehicle sales and labor
matters. The principal environmental regulatory requirements applicable to
the Company's operations relate to the ownership or use of tanks for the
storage of petroleum products, such as gasoline, diesel fuel and waste oils;
the treatment or discharge of waste waters; and the generation, storage,
transportation and off-site treatment or disposal of solid or liquid wastes.
The Company operates 29 locations at which petroleum products are stored in
underground or aboveground tanks. The Company
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<PAGE>
has instituted an environmental compliance program designed to insure that
these tanks are in compliance with applicable technical and operational
requirements, including periodic integrity testing of underground storage
tanks. The Company believes that the locations where it currently operates
(exclusive of certain locations in Philadelphia and Pittsburgh) are in
compliance, in all material respects, with such regulatory requirements.
The Company may also be subject to requirements related to the remediation
of, or the liability for remediation of, substances that have been released
to the environment at properties owned or operated by the Company or at
properties to which the Company sends substances for treatment or disposal.
Such remediation requirements may be imposed without regard to fault and
liability for environmental remediation can be substantial. Several of the
locations operated by Freedom River have been the subject of environmental
remediation as a consequence of leaks or spills and continue to have some
level of environmental impairment that may require further remediation. In
connection with the Freedom River acquisition, Chrysler Credit Corporation,
Inc. ("CCC"), the seller of the Freedom River operation, agreed to provide up
to $873,750 for a period of three years for remediation activities at sites
shown to be impaired by the Assessments performed under the supervision of
the Company. Although the ultimate cost of these remediation activities is
currently unknown, the Company believes that the amount of funding to be
provided by CCC will be sufficient to cover the cost of these remediation
activities. See "Risk Factors--Environmental Risks Inherent In On-Site
Petroleum Storage."
The Company may be eligible for reimbursement or payment of remediation
costs associated with future releases from its regulated underground storage
tanks. The states of California, Kentucky, Ohio, Pennsylvania and Virginia,
in which the Company maintains underground storage tanks, have established
funds to assist in the payment of remediation costs for releases from certain
registered underground tanks. Subject to certain deductibles, the
availability of funds, compliance status of the tanks and the nature of the
release, these tank funds may be available to the Company for use in
remediating future releases from its tank systems.
LEGAL MATTERS
From time to time, the Company is subject to routine litigation incidental
to its business. The Company maintains insurance policies that cover most of
the actions brought against the Company. See "Business--Insurance." The
Company is currently not involved in any legal proceeding which it believes
would have a material adverse effect upon its financial condition or
operations.
EMPLOYEES
The Company had approximately 2,000 employees at April 30, 1996, including
part-time and "on call" employees who shuttle vehicles between locations. At
April 30, 1996, 64 employees in San Diego, 53 employees in Pittsburgh and 69
employees in Philadelphia were subject to collective bargaining agreements.
The collective bargaining agreement covering the San Diego employees expires
in October 1997, the collective bargaining agreement covering the Pittsburgh
employees expires in November 1998 and the collective bargaining agreement
covering the Philadelphia employees expires in October 1998. The Company
believes that its employee relations are good.
HEADQUARTERS
The Company's headquarters facility consists of 2,500 square feet of
leased space in Daytona Beach, Florida. The Company believes that this
facility is sufficient for its needs because of the decentralized nature of
the Company's management.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and significant employees of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- --------------------- ----- -----------------------------------------------
CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF
<S> <C> <C>
Sanford Miller ....... 43 Executive Officer and Director
President, Chief Operating Officer and
John P. Kennedy ...... 51 Director
Jeffrey D. Congdon .. 53 Chief Financial Officer, Secretary and Director
Ronald D. Agronin ... 58 Director
Dr. Stephen L. Weber 54 Director
James F. Calvano .... 59 Director
Jeffrey R. Mirkin ... 43 Director
Alan D. Liker ........ 58 Director
Donald J. Norwalk ... 31 Vice President and Treasurer
Scott Tiemann ........ 37 Vice President and Corporate Controller
Jeffrey D. Widholm .. 32 Vice President--Corporate Development
</TABLE>
Directors are elected annually to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Officers
are elected by and serve at the discretion of the Board of Directors. Messrs.
Mirkin and Liker serve as directors under the terms of an agreement, entered
into by the Company in connection with the Los Angeles Acquisition, pursuant
to which the Company agreed to nominate and use its best efforts to elect to
the Board of Directors two persons designated by the seller of that franchise
so long as that seller owns more than 500,000 shares of Class A Common Stock.
Sanford Miller has been the Chairman of the Board of Directors and Chief
Executive Officer of the Company since April 1994. From August 1991 until
August 1994, he was Vice President of Tranex Rental of New York, Inc.
("Tranex"), which operated the Albany and Rochester Budget franchises, and
from December 1991 until August 1994, was Vice President of Capital City
Leasing, Inc. ("Capital City"), which operated the Richmond, Virginia Budget
franchise. Between 1989 and 1991, Mr. Miller served as Director of Marketing,
Special Accounts for BRAC. From 1981 to 1989, Mr. Miller was an executive
officer and principal stockholder of corporations that owned and operated 30
Budget franchises that were sold to BRAC in 1989. From 1979 to 1981, he was a
North East Regional Field Operations Manager for BRAC. Mr. Miller served as
President of the American Car Rental Association, a nation-wide industry
trade association, in 1993 and as Chairman of the Licensee Local Market
Advisory Board of the Budget System in 1989 and 1990. Mr. Miller is also a
director of MoneyGram Payment Systems, Inc. and Tomoka State Bank.
John P. Kennedy has been President, Chief Operating Officer and a director
of the Company since April 1994. From November 1991 until August 1994, he was
President of Metro West, Inc. whose wholly-owned subsidiary owns the
Company's San Diego airport operations. From September 1989 until October
1991, he was an independent consultant to the vehicle rental industry. From
July 1985 to August 1989, he served as President of NYRAC, Inc. d/b/a Budget
Rent a Car of Kennedy and La Guardia Airports. From 1968 to 1984, he served
in various capacities with Avis, including the position of Vice President of
Operations.
Jeffrey D. Congdon has been the Chief Financial Officer, Secretary and a
director of the Company since April 1994. Since December 1990, he has been
Secretary and Treasurer of Tranex Credit Corporation, which provides
financing for purchases of previously-owned vehicles. From 1980 to 1989, he
was an executive officer and principal stockholder of corporations that owned
and operated 30 Budget franchises that were sold to BRAC in 1989. From 1982
to the present, Mr. Congdon has owned and operated retail new and/or
previously-owned car sales operations in Indianapolis, Indiana.
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<PAGE>
Ronald D. Agronin was elected as a director in April 1994. Since 1993, Mr.
Agronin has served as Vice Chairman of Black Clawson Company, which is a
manufacturer of paper making machinery and as President and Chief Executive
Officer of United Container Machinery, Inc., a container manufacturer. He
served as Executive Vice President and Chief Operating Officer of Black
Clawson from 1987 until 1993. He serves as a director of both of these
companies. Mr. Agronin is the first cousin of Mr. Miller.
Dr. Stephen L. Weber was elected as a director in April 1994. In August
1995, Dr. Weber was appointed as the Interim Provost at the State University
of New York System Office. Since 1988, he has been President of State
University of New York at Oswego. In July 1996, Dr. Weber will become
President of San Diego State University.
James F. Calvano was elected as a director of the Company in August 1994.
Since February 1996, Mr. Calvano has been the President and Chief Executive
Officer of MoneyGram Payment Systems, Inc., a provider of electronic money
transfer services. From February 1995 until February 1996, Mr. Calvano was
Executive Vice President of Marketing for Travelers Group, a subsidiary of
Travelers, Inc. From November 1993 until February 1996, he was Chief
Administrative Officer of Travelers Insurance Companies. From June 1991 until
May 1993, Mr. Calvano was President and Chief Operating Officer of New Valley
Corp. Two months before he assumed this position, New Valley Corp. suspended
payments on its publicly held debt. An involuntary bankruptcy petition under
Title 11 of the U.S. Code was filed against New Valley Corp. in November 1991
and a voluntary bankruptcy petition under Title 11 was filed by New Valley
Corp. in March 1993. From January 1989 until December 1990, Mr. Calvano was
President and Chief Executive Officer of Carlson Travel Group and Executive
Vice President of Carlson Companies Inc. From November 1986 until December
1988, he served as President of Commercial Credit Corp. and Executive Vice
President of Primerica Corp. Mr. Calvano served American Express Travel
Related Services Co., Inc. as its Vice Chairman, President of Payment Systems
Division, USA and President of Consumer Financial Services Division, USA
between October 1981 and November 1986. From 1972 to 1981, Mr. Calvano was
employed by Avis and served in various capacities, including President and
Chief Executive Officer, Executive Vice President and Chief Operating Officer
and Group Vice President, Western Hemisphere.
Jeffrey R. Mirkin was elected as a director of the Company in October
1995. Since 1985, Mr. Mirkin has been the Chief Executive Officer of SoCal, a
licensee of BRAC and through its wholly owned subsidiary, an operator of
Budget locations in Southern California. See "Certain Transactions."
Alan D. Liker has been a director since October 1995. He has served as a
business advisor to a number of individuals and companies during the past
five years, including as Vice President of SoCal since February 1992. Mr.
Liker is also a director of Herbalife International. Mr. Liker was a director
of Shaklee Corporation and its Japanese affiliate, Shaklee KK until their
sale in 1989. From 1976 to 1980, he was a principal of Xerox Development
Corporation, a strategic planning unit of Xerox Corporation. Mr. Liker was
previously a law professor at the Harvard University, University of
California (Los Angeles) and University of Southern California law schools.
Previously he was a director of First Charter Bank and Shop Television
Network. See "Certain Transactions."
Donald J. Norwalk has been Vice President and Treasurer of the Company
since July 1994. From January 1994 until July 1994, he was the SEC Reporting
and Compliance Officer for FFLC Bancorp, Inc., a bank holding company. From
January 1989 to January 1994, he was an auditor for Deloitte & Touche serving
clients primarily in the financial, manufacturing and real estate industries.
Scott Tiemann has been Vice President and Controller of the Company since
July 1994. From March 1992 until July 1994, he was employed by BRAC as the
Business Manager for Freedom River. From November 1989 until March 1992, he
was a city controller for BRAC.
Jeffrey D. Widholm has been Vice President of Corporate Development of the
Company since August 1995. From January 1987 until August 1995, he was a
corporate banking officer for Bank One, Indianapolis, N.A., where he was
responsible for a loan portfolio of middle market and large corporate
clients.
41
<PAGE>
The Company's Board of Directors has a Compensation Committee and an
Audit/Finance Committee. The Compensation Committee, composed of Mr. Agronin
and Dr. Weber, establishes salaries, incentives and other forms of
compensation for directors, officers and other employees of the Company,
administers various incentive compensation and benefit plans and recommends
policies relating to such plans. The Audit/Finance Committee, composed of
Messrs. Agronin and Calvano, reviews the Company's accounting practices,
internal accounting controls and financial results and oversees the
engagement of the Company's independent auditors. Nonemployee directors
receive an annual retainer of $12,000 and participate in the 1994 Directors'
Stock Option Plan. The Company also pays the reasonable out-of-pocket
expenses of each director in connection with his attendance at each Board or
committee meeting. In connection with the Los Angeles Acquisition, the
Company and the Principal Executive Officers agreed that for so long as SoCal
and its general partners own 500,000 or more shares of the Class A Common
Stock received in the Los Angeles Acquisition, the Company and the Principal
Executive Officers will nominate and use their best efforts to elect to the
Company's Board of Directors two persons designated by SoCal and further, for
so long as SoCal and its general partners own less than 500,000 but more than
250,000 shares of Class A Common Stock, the Company and the Principal
Executive Officers agreed to nominate to the Company's Board of Directors one
person designated by SoCal. Following the Los Angeles Acquisition, Messrs.
Mirkin and Liker were selected by SoCal and thereafter elected to the Board
of Directors of the Company.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of the compensation paid by the
Company during the last three fiscal years to the Chief Executive Officer and
certain other executive officers of the Company.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ---------------------
OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS
- --------------------------- ------ ------------- -------------- ---------------------
<S> <C> <C> <C> <C>
Sanford Miller ............. 1995 $ 183,667 $ -- 30,000
Chairman of the Board and 1994 $ 91,108(1) $ $ 14,067(2) --
Chief Executive Officer 1993 30,000(1) $ 17,918(2) --
John P. Kennedy ............ 1995 $ 175,333 $ -- 25,000
President and Chief 1994 $ 94,558 $-- --
Operating Officer 1993 $ 111,900 $ -- --
Jeffrey D. Congdon ......... 1995 $ 173,333 $ -- 25,000
--
Chief Financial Officer 1994 $ 26,250(3) $ -- --
and Secretary 1993 $ -- $ --
</TABLE>
- ------------
(1) Does not include $6,924 and $27,696 of cash dividends paid by Tranex
and Capital City to Mr. Miller in 1994 and 1993, respectively.
(2) Other annual compensation consists of $12,476 and $15,192 of payments
made by the Company with respect to vehicles used by Mr. Miller in 1994
and 1993, respectively, and $1,591 and $2,726 of gasoline expenses in
connection with the use of these vehicles in 1994 and 1993,
respectively.
(3) Represents salary for the period from August 24, 1994 through the end
of 1994.
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<PAGE>
OPTION GRANTS DURING FISCAL 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
- ----------------------------------------------------------------------------- ----------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES IN BASE PRICE
NAME GRANTED FISCAL YEAR PER SHARE EXPIRATION DATE 5% 10%
- ------------- ------------ ---------------- ------------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mr. Miller .. 30,000 15.6% $9.50 March 1, 2005 $179,235 $454,217
Mr. Kennedy . 25,000 13.0% $9.50 March 1, 2005 $149,362 $378,514
Mr. Congdon . 25,000 13.0% $9.50 March 1, 2005 $149,362 $378,514
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS AT FISCAL YEAR-END
------------------------------
NAME EXERCISEABLE UNEXERCISEABLE
- -------------- -------------- --------------
<S> <C> <C>
Mr. Miller .... -- 30,000
Mr. Kennedy .. -- 25,000
Mr. Congdon .. -- 25,000
</TABLE>
No options were exercised in 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Compensation Committee is composed of Mr. Agronin and Dr. Weber,
neither of whom has ever (i) been an officer or employee of the Company or
any of its subsidiaries or (ii) entered into a related-party transaction with
the Company.
BENEFIT PLANS
1994 Option Plan. The 1994 Option Plan provides for the grant to selected
key employees of the Company and its subsidiaries of either incentive stock
options within the meaning of Section 422 of the Code or nonqualified options
(intended not to qualify as incentive stock options) to purchase Class A
Common Stock. The 1994 Option Plan is administered by the Compensation
Committee of the Board of Directors. The maximum number of shares of Class A
Common Stock that may be made subject to options granted pursuant to the 1994
Option Plan is 260,000, and the maximum number of shares for which an
employee may be granted options in any three-year period is 75,000, subject,
in each case, to adjustments for certain changes in the Company's
capitalization. The price per share under an incentive stock option must be
at least the fair market value per share as of the date of grant; the price
per share under a nonqualified option is determined by the Compensation
Committee but may not be less than the greater of 85% of such fair market
value per share or the book value per share on the date the nonqualified
stock option is granted. In the case of an employee who owns more than 10% of
the voting power of the Company, the price per share under an incentive stock
option must be at least 110% of the fair market value per share as of the
date of grant. No option may be exercised within six months from the date of
grant, except that an option will be immediately exercisable upon the
occurrence of certain events, including a "change in control" of the Company
as defined in the 1994 Option Plan. Except in the event of the death or
disability of a holder of nonqualified stock options, no option may be
exercised more than 10 years after its date of grant (and, in the case of an
employee who owns more than 10% of the voting power of the Company, an
incentive stock option held by such employee may not be exercised more than
five years after its date of grant). Unless sooner terminated, the 1994
Option Plan terminates on April 24, 2004. As of the date of this Prospectus,
192,600 options have been granted under the 1994 Option Plan.
The Board of Directors has approved and recommended to the stockholders
that they approve at the Company's annual stockholder meeting on June 18,
1996 a proposal to amend the 1994 Option Plan to (i) increase the number of
shares of Common Stock available for grant under such plan from 260,000 to
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<PAGE>
760,000, an increase of 500,000 shares of Common Stock, (ii) provide that the
committee that administers the 1994 Option Plan must be comprised of "outside
directors" and that the option price for all options to be granted under the
1994 Option Plan may not be less than the fair market value of Common Stock
on the day the option is granted in order to qualify the 1994 Option Plan for
an exception to the $1,000,000 remuneration deduction limitation imposed
under Section 162(m) of the Code and (iii) permit the grant of options to
purchase shares of Class B Common Stock. In the event that the proposed
amendment is approved, 555,400 options would remain available for grant under
the 1994 Option Plan. Messrs. Miller, Congdon and Kennedy abstained from
voting with respect to the proposed amendment in light of their potential
interests in the amendment of the 1994 Option Plan.
1994 Directors' Stock Option Plan. The Company's 1994 Directors' Stock
Option Plan (the "1994 Directors' Plan") provides for the grant to directors
of the Company who are not employees of the Company ("outside directors") of
options to purchase Class A Common Stock. Because the 1994 Directors' Plan by
its terms specifies the class of directors eligible to receive options, the
timing of the grant of options, the number of shares underlying options to be
granted and the exercise price of such options, there is no discretionary
administration with regard to these matters. The Board of Directors may
appoint a committee to perform ministerial duties in connection with the 1994
Directors' Plan. The maximum number of shares of the Class A Common Stock
subject to options granted pursuant to the 1994 Directors' Plan is 25,000.
Each outside director was granted an option for 5,000 shares of Class A
Common Stock on the date on which the director was elected to office or, if
later, the effective date of the 1994 Directors' Plan. The exercise price per
share under an option was the fair market value per share as of the date of
grant. The options are exercisable in full beginning six months after the
date of grant, except that an option will be immediately exercisable upon the
occurrence of certain events, including a change in the control of the
Company. Except in the event of a holder's death or disability, no option may
be exercised more than 10 years after its date of grant. Unless sooner
terminated, the 1994 Directors' Plan will terminate on April 24, 2004. As of
the date of this Prospectus, 5,000 options have been granted to each of
Messrs. Agronin, Calvano, Weber, Mirkin and Liker under the 1994 Directors'
Plan. There are no additional options available for grant under the 1994
Directors' Plan.
CERTAIN TRANSACTIONS
Concurrently with the completion of the initial public offering in August
1994, Messrs. Miller, Kennedy, Congdon and certain current and former
employees of the Company (the "Exchange Stockholders"), who were the
stockholders of certain of the corporations that owned the Albany and
Rochester, New York, Richmond, Virginia and San Diego, California Budget
franchises, exchanged all of their shares of these corporate entities for an
aggregate of 563,400 shares of the Class A Common Stock and 1,936,450 shares
of the Class B Common Stock (the "Share Exchange"). The Principal Executive
Officers thereby acquired 100% of the shares of the Class B Common Stock that
have been issued by the Company. Upon consummation of the Share Exchange and
the redemption of the preferred stock of the Company's subsidiary that
operates the San Diego airport franchise, all of the Albany, Rochester,
Richmond and San Diego operating companies became wholly-owned subsidiaries
of the Company. See "Shares Eligible for Future Sale."
Pursuant to an agreement dated as of November 1, 1994, Team Rental of Ft.
Wayne, Inc. ("TRFW") a wholly-owned subsidiary of the Company, purchased all
of the shares of capital stock of Ft. Wayne Rental Group, Inc. ("Ft. Wayne").
Ft. Wayne, which was owned by Sanford Miller and others, including a former
employee of the Company, acquired the assets constituting the Ft. Wayne
business in June 1993 for approximately $26,000, plus the assumption of
approximately $66,000 of liabilities. The total purchase price for the stock
of Ft. Wayne was 18,500 shares of the Class A Common Stock of the Company
(plus a de minimis amount of cash to prevent the issuance of fractional
shares of stock). Mr. Miller received 7,400 shares of Class A Common Stock in
exchange for his shares of Ft. Wayne stock. Prior to the acquisition of Ft.
Wayne, Tranex Rentals of New York, Inc. d/b/a Budget Rent a Car of Albany and
Rochester, which became a subsidiary of the Company in the Share Exchange,
leased vehicles to Ft. Wayne. The aggregate payments under this lease
amounted to approximately $366,000 in 1994.
44
<PAGE>
Messrs. Miller, Kennedy and Congdon have guaranteed the performance of the
obligations of some or all of the Company's subsidiaries under their
respective Franchise Agreements. In connection with the initial public
offering, the Company's franchisors agreed to release these individuals from
their guarantees under the Franchise Agreements and substitute the Company's
guarantee therefor, provided that the Company maintains a tangible net worth
of at least $15 million. In the event that the Company's net worth falls
below this level, the Company has the option to provide the franchisors with
a $5 million letter of credit that could be drawn on in the event of a
monetary default under the Company's franchise agreements or, in the
alternative, to allow the personal guarantees to be reinstated.
The Company's Richmond, Virginia airport facility is leased from a
partnership formed by Mr. Miller and an employee of the Company (the
"Richmond Partnership"). This lease terminates in 1998, subject to renewal.
Rental payments under the lease agreement amounted to approximately $31,200,
$95,000 and $97,000 in 1993, 1994 and 1995, respectively. The monthly base
rent under this lease (approximately $7,800, $7,900 and $8,100 in 1993, 1994
and 1995, respectively) escalates by approximately 3% per annum. The Company
has entered into another lease for a non-airport facility located in
Chesterfield County, Virginia that is owned by the Richmond Partnership. This
lease commenced in June 1994 and terminates in May 1999, subject to renewal.
Rental payments under the lease agreement amounted to approximately $24,000
and $33,000 in 1994 and 1995, respectively. The monthly base rent under this
lease was approximately $3,400 and $3,500 in 1994 and 1995, respectively and
escalates by approximately 3% per annum. The Company's Rochester, New York
airport facility is leased from a partnership formed by Mr. Miller and a
former employee of the Company. This lease terminates in 2003, subject to
renewal. The monthly base rent under this lease (approximately $6,350, $6,700
and $6,800 in 1993, 1994 and 1995, respectively) escalates by 5% per annum
until August 30, 1996, and thereafter annual increases will be the higher of
5% or the amount of the increase in the consumer price index. Rental payments
under the lease amounted to $25,400, $75,000 and $81,000 in 1993, 1994 and
1995, respectively. All of these leases are on a triple net basis (i.e., the
Company is responsible for the payment of taxes and insurance, utilities and
for the general maintenance of these facilities in addition to its
obligations to pay base rent). All of these leases provide for an initial
term of ten years and two five-year renewal terms. The Company believes that
these leases are on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
The Company's Philadelphia, Pennsylvania retail vehicle sales facility,
regional administrative headquarters and vehicle maintenance facility are
leased from MCK Real Estate Corporation ("MCK"), which is owned by Messrs.
Miller, Congdon and Kennedy. This lease terminates in September 2002, subject
to renewal. Rental payments under the lease were approximately $168,000 for
1995. The monthly base rent (approximately $26,000 per month in 1995)
escalates by 3% per annum. The Company's Richmond, Virginia retail car sales
facility is leased from MCK. This lease terminates in October 2000, subject
to renewal. Rental payments under this lease were approximately $10,000 for
1995. The monthly base rent under this lease (approximately $10,000 per month
in 1995) escalates by 3% per annum. The Company's second Dayton, Ohio retail
car sales facility, which opened in April 1996, is leased from MCK. This
lease terminates in March 2001, subject to renewal. The monthly base rent
under this lease (approximately $10,000 per month in 1996) escalates by 3%
per annum). All of these leases are on a triple net basis. The Company
believes that these leases are on terms no less favorable than could be
obtained from unaffiliated third parties.
Prior to the Company's initial public offering, the Company's subsidiaries
funded their operations in part through loans from the Company's executive
officers. The following table sets forth certain information with respect to
loans provided by the Principal Executive Officers. All such loans, together
with accrued interest, were repaid upon the completion of the initial public
offering.
45
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL OUTSTANDING
NAME OF EXECUTIVE PRINCIPAL INTEREST RATE
OFFICER PROVIDING LOAN DATE OF LOAN AMOUNT PER ANNUM
- ---------------------- -------------- ----------- ----------------
<S> <C> <C> <C>
Sanford Miller ........ January 1992 $ 40,000 10%
September 1992 $310,000 15%
December 1992 $ 56,000 10%
January 1993 $130,000 12%
June 1994 $516,257 12%
Jeff Congdon .......... December 1989 $200,000 prime plus 1.75%
September 1992 $310,000 15%
January 1993 $130,000 12%
June 1994 $516,257 12%
John Kennedy .......... September 1992 $310,000 15%
January 1993 $130,000 12%
June 1994 $250,000 12%
</TABLE>
In addition, in order to finance the organizational expenses incurred by
the Company prior to the initial public offering, Messrs. Miller, Congdon and
Kennedy advanced the following amounts: Mr. Miller--$41,289 at prime plus
1.5%; $3,300, non-interest bearing; Mr. Congdon--$14,266 at prime plus 1.5%;
$1,800, non-interest bearing; and Mr. Kennedy--$14,266 at prime plus 1.5%;
$1,800, non-interest bearing. All of these advances, together with accrued
interest, were repaid upon completion of the initial public offering.
In connection with the Los Angeles Acquisition, the Company entered into a
Franchise Agreement with SoCal, under which the Company agreed to pay to the
seller, SoCal, a royalty of 5% of the monthly gross rental revenues derived
from those operations, subject to a minimum amount. In addition, the Company
issued a note to SoCal in the principal amount of approximately $4,750,000
(the "SoCal Note"), assumed the obligations of SoCal under a note in the
principal amount of approximately $4,700,000 which was secured by the
personal guaranty of Jeffrey R. Mirkin (the "SoCal Bank Note"). Mr. Mirkin is
the Chief Executive Officer and a general partner of SoCal and upon
consummation of the Los Angeles Acquisition, became a director of the
Company. The Company operates as a sub-franchisee of SoCal in the San Diego
territory and pays royalty fees to SoCal based on rental revenues for
vehicles other than trucks. In 1993, 1994 and 1995, the Company paid SoCal
approximately $1,100,000, $1,000,000 and $1,200,000 in royalty fees,
respectively. Except as described above, prior to the Los Angeles
Acquisition, there was no material relationship between the Company and
SoCal. The SoCal Note together with accrued interest of $103,906, and the
SoCal Bank Note were repaid in April 1996. There is approximately $700,000 of
other indebtedness currently payable by the Company to SoCal.
Sanford Miller is a member of the board of directors of Tomoka State Bank
in Ormond Beach, Florida. The Company maintains a checking account at that
bank with an average balance of $100,000.
46
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth, as of April 30, 1996 certain information with
respect to the beneficial ownership of Common Stock by (i) each person who is
known by the Company to be the beneficial owner of more than 5% of the Common
Stock of the Company, (ii) each of the executive officers and directors of
the Company and all directors and executive officers as a group and (iii)
each of the Selling Stockholders, in each case both before and after giving
effect to this Offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY PERCENT OF TOTAL
OWNED PRIOR TO THE SHARES TO BE OWNED AFTER THE VOTING POWER OF
OFFERING (1) SOLD IN THE OFFERING (1) COMMON STOCK AFTER
----------------------------------------------------------------------------------------------------------------- -------------
----------------------------------------------------------------------------------------------------
NUMBER PERCENT OFFERING NUMBER PERCENT THE OFFERING
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS
Sanford Miller(2) .............. 922,500 12.4% -- 922,500 8.8% 32.6%
Jeffrey D. Congdon(3) .......... 533,350 7.2 -- 533,350 5.1 18.6
John P. Kennedy(4) ............. 523,500 7.0 -- 523,500 5.0 18.5
Ronald D. Agronin (5) .......... 7,000 * -- 7,000 * *
Dr. Stephen L. Weber(5) ........ 8,100 * -- 8,100 * *
James Calvano(5) ............... 5,000 * -- 5,000 * *
Jeffrey R. Mirkin(5)(6) ........ 1,055,000 14.2 400,000 655,000 6.3 2.4
Alan D. Liker(5)(7) ............ 83,333 1.1 -- 83,333 * *
All directors and officers as a
group (8 persons)(8) .......... 3,059,450 41.0 400,000 2,659,450 24.2 72.1
OTHER SELLING STOCKHOLDER
Katzin Investments L.C. ........ 272,727 3.7 272,727 -- -- --
OTHER FIVE PERCENT STOCKHOLDERS
Ronald Baron(9) ................ 454,000 6.1 -- 454,000 4.4 1.6
</TABLE>
- ------------
* Less than 1%.
(1) In determining the number and percent of shares beneficially owned by
each person, shares that may be acquired by such person pursuant to
options exercisable within 60 days of the date hereof are deemed
outstanding for purposes of determining the total number of outstanding
shares for such person and are not deemed outstanding for such purpose
for all other stockholders. To the best of the Company's knowledge,
except as otherwise indicated, beneficial ownership includes sole
voting and dispositive power with respect to all shares.
(2) Of the 922,500 shares of Common Stock owned, 905,800 are shares of
Class B Common Stock and 16,700 are shares of Class A Common Stock. Mr.
Miller's address is 125 Basin Street, Daytona Beach, Florida 32114.
(3) Of the 533,350 shares of Common Stock, 515,400 are shares of Class B
Common Stock and 17,950 are shares of Class A Common Stock. Mr.
Congdon's address is 7050 West Washington Street, Indianapolis, Indiana
46241.
(4) Of the 523,500 shares of Common Stock, 515,400 are shares of Class B
Common Stock and 8,100 are shares of Class A Common Stock. Mr.
Kennedy's address is 45 Riverside Avenue, Westport, Connecticut 06880.
(5) Includes 5,000 shares of Class A Common Stock issuable upon exercise of
options granted under the 1994 Directors' Plan.
(6) Includes 1,050,000 shares of Class A Common Stock beneficially owned by
SoCal, a general partnership, of which Mr. Mirkin is the trustee of
certain trusts which are general partners of SoCal. Mr. Mirkin's
address is 150 South Doheny Drive, Beverly Hills, California 90211.
(7) Includes 78,333 shares of Class A Common Stock that may be acquired by
Mr. Liker from SoCal pursuant to an option granted by SoCal to Mr.
Liker.
(8) Includes 25,000 shares issuable upon the exercise of options granted
under the 1994 Directors' Plan.
(9) Includes 240,000 shares owned by BAMCO, Inc., a registered investment
advisor controlled by Mr. Baron, in its capacity as an advisor to
clients, which may include registered investment companies; 114,000
shares owned by Baron Capital Management, Inc., a registered investment
company controlled by Mr. Baron; and 100,000 shares owned by Baron
Capital Partners, L.P., an investment partnership of which Mr. Baron is
a general partner. Mr. Baron shares voting and dispositive power as to
354,000 shares, as to which he disclaims beneficial ownership. This
information is represented in reliance upon a Schedule 13D filed by Mr.
Baron with the Securities and Exchange Commission on or about April 24,
1996. Mr. Baron's address is c/o BAMCO, Inc., 450 Park Avenue, New
York, New York 10022.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 17,500,000 shares
of the Class A Common Stock, 2,500,000 shares of the Class B Common Stock and
250,000 shares of the preferred stock, $.01 par value per share (the
"Preferred Stock"). Immediately prior to the date of this Prospectus, there
were 5,493,176 shares of the Class A Common Stock, 1,936,600 shares of the
Class B Common Stock and no shares of the Preferred Stock outstanding. All of
the outstanding shares of Class B Common Stock are held by the Principal
Executive Officers.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Voting Rights. Each share of the Class A Common Stock is entitled to one
vote and each share of the Class B Common Stock is entitled to ten votes on
all matters submitted to a vote of the stockholders. The Class A Common Stock
and the Class B Common Stock vote together as a single class on all matters
presented for a vote of the stockholders, except as noted below. Immediately
following the Offering, the holders of the Class B Common Stock will have
approximately 69.5% of the combined voting power of the outstanding Class A
and Class B Common Stock and therefore will retain effective control of the
Company, continue to direct the business, management and policies of the
Company and continue to have the ability to elect all of the members of the
Board of Directors.
The Company's Amended and Restated Certificate of Incorporation requires a
vote of 60% of the number of shares of the Class B Common Stock outstanding,
voting separately as a class, and a majority of the shares of the Class A
Common Stock, voting separately as a class, to approve any modification to
the rights and privileges of the Class A Common Stock or the Class B Common
Stock or any reclassification or recapitalization of the Company's
outstanding capital stock.
Dividends. Each share of the Class A Common Stock is entitled to receive
dividends if, as and when declared by the Board of Directors of the Company
out of funds legally available therefore. Identical dividends, if any, must
be paid on both the Class A Common Stock and the Class B Common Stock at any
time that dividends are paid on either, except that stock dividends payable
on shares of the Class B Common Stock are payable only in shares of the Class
B Common Stock and stock dividends payable on shares of the Class A Common
Stock are payable only in shares of the Class A Common Stock. If a dividend
or distribution payable in the Class A Common Stock is made on the Class A
Common Stock, the Company must also make a pro rata and simultaneous dividend
or distribution of shares of Class B Common Stock on the Class B Common
Stock. If a dividend or distribution payable in Class B Common Stock is made
on the Class B Common Stock, the Company must also make a pro rata and
simultaneous dividend or distribution of shares of Class A Common Stock on
the Class A Common Stock.
Convertibility. Each share of the Class B Common Stock is convertible at
any time at the option of the holder into the Class A Common Stock on a
share-for-share basis. Shares of the Class B Common Stock will be
automatically converted into shares of the Class A Common Stock on a
share-for-share basis in the event that the record or beneficial ownership of
such shares of the Class B Common Stock shall be transferred (including,
without limitation, by way of gift, settlement, will or intestacy) to any
person or entity that was not a holder of Class B Common Stock at the time of
transfer. Therefore, the shares of Class B Common Stock will only exist so
long as they are held by one or more of the Principal Executive Officers.
Shares of the Class A Common Stock are not convertible.
Liquidation Rights. In the event of the dissolution of the Company, after
satisfaction of amounts payable to creditors and distribution to the holders
of outstanding Preferred Stock, if any, of amounts to which they may be
preferentially entitled, holders of the Class A Common Stock and the Class B
Common Stock are entitled to share ratably in the assets available for
distribution to the stockholders.
Other Provisions. There are no preemptive rights to subscribe to any
additional securities which the Company may issue and there are no redemption
provisions or sinking fund provisions applicable to the Class A Common Stock
or the Class B Common Stock, nor is either class subject to calls or
assessments by the Company. All outstanding shares of Common Stock are, and
all shares to be outstanding upon completion of this Offering will be,
legally issued, fully paid and nonassessable.
48
<PAGE>
PREFERRED STOCK
The Board of Directors of the Company has the authority, without further
action by the stockholders, to cause the Company to issue up to 250,000
shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any
unissued shares of Preferred Stock and to fix the number of shares
constituting any series and the designations of such series. The issuance of
Preferred Stock, while providing flexibility in connection with possible
financings, acquisitions and other corporate transactions, could, among other
things, adversely affect the voting power of the holders of Common Stock and,
under certain circumstances, make it more difficult for a third party to gain
control of the Company, deny stockholders the receipt of a premium on their
Common Stock and have a depressive effect on market price of the Common
Stock. The Company has no present plan to issue any shares of Preferred
Stock.
WARRANTS
In connection with the Company's initial public offering and acquisition
of the Budget operations in Philadelphia, Pittsburgh and Cincinnati, the
Company issued to BRAC a warrant (the "BRAC Warrant") to purchase 175,000
shares of the Class A Common Stock at the price of the shares in the initial
public offering ($9.50 per share). The BRAC Warrant is exercisable commencing
August 1996 and expires in August 1999. After August 24, 1998 and prior to
August 24, 1999, the holder of the BRAC Warrant will have the right to cause
the Company to repurchase the BRAC Warrant for $2.0 million. In connection
with financing provided to the Company in April 1996, the Company issued to
NationsBank, National Association (South) a warrant (the "NationsBank
Warrant") to purchase 187,500 shares of Class A Common Stock at the then
current market price ($10.87 per share). The NationsBank Warrant is
exercisable from the date of its issuance and expires April 2001.
BYLAW PROVISIONS
The Company's Bylaws provide that special meetings of the stockholders may
be called only by the Board of Directors, the Chairman of the Board, the
Chief Executive Officer, the President or Secretary of the Company, or by one
or more stockholders holding shares entitled to cast not less than a majority
of the aggregate votes entitled to be cast at such meeting. The Bylaws also
provide that any action which may be taken at any meeting of stockholders may
be taken without a meeting and without prior notice if written consents
approving the action are signed by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to take
such action at a meeting of stockholders. Accordingly, the holders of the
Class A Common Stock will have insufficient voting power, in the aggregate,
to call special meetings of stockholders and the holders of the Class B
Common Stock may take certain actions by written consent without formally
convening a meeting of stockholders. These provisions will also make it more
difficult for a third party to gain control of the Company.
REGISTRATION RIGHTS
Concurrently with completion of the initial public offering, the Company
and the Exchange Stockholders entered into the registration rights agreement
(the "Registration Rights Agreement") granting such holders registration
rights with respect to the shares of Common Stock received by them as a
result of the Share Exchange. The Registration Rights Agreement provided that
the holders of at least 33% of the outstanding shares received in the Share
Exchange may require the Company to register such shares under the Securities
Act of 1933, as amended (the "Securities Act") on two occasions; provided
that the aggregate offering price of the shares so registered is not less
than $1 million on each occasion. The Registration Rights Agreement also
provided that at any time Class A Common Stock is to be registered by the
Company under the Securities Act, the Company must notify the Exchange
Shareholders to allow their participation in the registration, subject to
certain conditions. The Company has agreed to refrain from selling its
securities during the ten-day period prior to, and the 180-day period
following, the consummation of each underwritten offering made pursuant to
the Registration Rights Agreement. The Company has also agreed to pay the
costs and expenses of each registration effected under the Registration
Rights Agreement, other than underwriting discounts and commissions. The
49
<PAGE>
Registration Rights Agreement was amended in November 1, 1994 to include the
signatories to the Ft. Wayne Stock Purchase Agreement. The shares issuable
upon the exercise of the BRAC Warrant are also entitled to two demands and
unlimited "piggyback" registration rights with respect to the shares issuable
upon its exercise, while the shares issuable upon the NationsBank Warrant are
entitled to one demand and unlimited "piggyback" registration rights. The
Company will bear the expenses of registering such shares, other than
underwriting discounts and commissions. In connection with the Los Angeles
Acquisition, the Company and SoCal entered into a registration rights
agreement granting SoCal and its affiliated entities an unlimited number of
"piggyback" registrations subject to certain conditions. The Company will
bear the expenses of registering such shares, other than underwriting
discounts and commissions. In connection with the Phoenix Acquisition, the
Company granted to Katzin Investments, L.C. three demand and an unlimited
number of "piggyback" registration rights for a period of two years for the
shares of Class A Common Stock issued in the Phoenix Acquisition. Katzin
Investments, L.C. is selling all of its shares of Class A Common Stock in the
Offering pursuant to its Registration Rights. See "Principal and Selling
Stockholders." In connection with the Offering, the Company has agreed to pay
the Selling Stockholders' costs and expenses, other than underwriting
discounts and commissions.
INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, the Company's
Restated Certificate of Incorporation provides that directors of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
international misconduct or a knowing violation of law, (iii) under Section
174 of the Delaware General Corporation Law, relating to prohibited
dividends, distributions and repurchases or redemptions of stock, or (iv) for
any transaction from which the director derives an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its directors,
officers, employees and other agents, to the fullest extent provided by
Delaware law. The Company has also entered into indemnification agreements
with certain of its executive officers and directors. The indemnification
agreements require the Company, among other things, to indemnify such
directors and officers against certain liabilities that may arise by reason
of their status or service as directors or officers (other than liabilities
arising from willful misconduct of a culpable nature), and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified. The Company maintains directors' and officers'
insurance against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Company pursuant to the arrangements described above, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
At present, there is no pending material litigation or proceeding
involving any director, officer, employee or agent of the Company where
indemnification will be required or permitted.
SECTION 203
The Company is subject to Section 203 of the Delaware Law, which prohibits
a publicly held Delaware corporation from consummating a "business
combination," except under certain circumstances, with an "interested
stockholder" for a period of three years after the date such person became an
"interested stockholder" unless the business combination is approved in a
prescribed manner. An "interested stockholder" generally is defined as a
person who, together with affiliates and associates, owns (or, within the
prior three years, owned) 15% or more of a corporation's outstanding voting
stock. A "business combination" includes mergers, asset sales and certain
other transactions resulting in a financial benefit to an interested
stockholder.
TRANSFER AGENT
The transfer agent and registrar for the Class A Common Stock is Chemical
Bank.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
8,493,176 shares of the Class A Common Stock and 1,936,600 shares of the
Class B Common Stock (assuming the Underwriters' over-allotment option is not
exercised). The Class B Common Stock is convertible on a share-for-share
basis into Class A Common Stock and must be converted to effect any public
sale of such stock. Of these shares, 7,127,127 shares, including the
3,672,727 shares of Class A Common Stock sold in the Offering, will be freely
tradeable without restriction under the Securities Act, except for any shares
purchased by an "affiliate" of the Company (as that term is defined in the
Securities Act), which will be subject to the resale limitations of Rule 144
under the Securities Act.
The remaining 1,366,049 shares of the Class A Common Stock and all shares
of the Class B Common Stock are "restricted" securities within the meaning of
Rule 144 and may not be resold in a public distribution, except in compliance
with the registration requirements of the Securities Act or pursuant to Rule
144. 2,500,000 of such shares will become eligible for sale under Rule 144 in
August 1996. The Company's executive officers and directors, who in the
aggregate will hold beneficially 697,850 shares of Class A Common Stock and
all of the Class B Common Stock after the Offering, have agreed that they
will not sell, contract or offer to sell or otherwise dispose of, directly or
indirectly, any shares of capital stock of the Company for a period of 90
days from the date of this Prospectus without the prior written consent of CS
First Boston on behalf of the Underwriters. After such date, certain of these
stockholders have the right to demand that the Company register their shares
under the Securities Act in accordance with agreements between such holders
and the Company and may be able to dispose of their shares in a registered
public offering effected thereunder. In addition, certain stockholders and
holders of the stock purchase warrants possess certain demand and/or
"piggyback" registration rights. See "Description of Capital
Stock--Registration Rights" and "Management--Benefit Plans."
The Company has reserved 260,000 shares of Class A Common Stock for
issuance under the 1994 Option Plan and 25,000 shares of Class A Common Stock
for issuance under the 1994 Directors' Plan. 192,600 stock options are
currently issued or outstanding under the 1994 Option Plan and 25,000 stock
options are issued and outstanding under the 1994 Directors' Plan. In
addition, the stockholders will vote on a proposal at the annual meeting on
June 18, 1996 to increase the number of shares of Common Stock available for
issuance under the 1994 Option Plan to 760,000, an increase of 500,000
shares. The Company filed a Form S-8 registration statement under the
Securities Act to register all 285,000 shares of the Class A Common Stock
issuable under the 1994 Option Plan and 1994 Directors' Plan. The
registration statement became effective immediately upon filing. Shares
issued upon the exercise of stock options after the effective date of the
Form S-8 registration statement will be eligible for resale in the public
market without restriction, subject to Rule 144 limitations applicable to
affiliates and the lock-up agreements applicable to certain shares subject to
options as described in the preceding paragraph. The Company has reserved
362,500 shares of the Class A Common Stock for issuance upon the exercise of
stock purchase warrants.
51
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1996 (the "Underwriting Agreement") among TEAM, the Selling
Stockholders and the underwriters named below (the "Underwriters"), the
Underwriters have severally but not jointly agreed to purchase from the
Company and the Selling Stockholders the following respective numbers of
shares of Class A Common Stock, as set forth opposite their names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------ -----------
<S> <C>
CS First Boston Corporation .........
The Chicago Corporation .............
McDonald & Company Securities, Inc.
-----------
Total ............................. 3,672,727
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Class A
Common Stock offered hereby (other than those shares covered by the
over-allotment option described below) if any are purchased. The Underwriting
Agreement provides that, in the event of a default by an underwriter, in
certain circumstances the purchase commitments of non-defaulting Underwriters
may be increased or the Underwriting Agreement may be terminated.
The Company has granted to the Underwriters an option exercisable by CS
First Boston Corporation on behalf of the Underwriters, expiring at the close
of business on the 30th day after the date of this Prospectus, to purchase up
to 550,909 additional shares of the Class A Common Stock at the public
offering price less the underwriting discounts and commissions, all as set
forth on the cover page of this Prospectus. The Underwriters may exercise
such option only to cover over-allotments, if any, in the sale of the shares
of Class A Common Stock. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Class A Common
Stock as it was obligated to purchase pursuant to the Underwriting Agreement.
The Company and the Selling Stockholders have been advised by the
Underwriters that the Underwriters propose to offer the shares of the Class A
Common Stock to the public initially at the public offering price set forth
on the cover page of this Prospectus and, through the Underwriters, to
certain dealers at such price less a concession of $ per share, and the
Underwriters and such dealers may allow a discount of $ per share on
sales to certain other dealers. After the public offering, the public
offering price and concession and discount to dealers may be changed by the
Underwriters.
In connection with this offering, the Underwriters and their respective
affiliates may engage in passive market making transactions in the Class A
Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A
under the Securities Exchange Act of 1934 (the "Exchange Act"), during a
period before commencement of offers or sales of the shares offered hereby.
The passive market making transactions must comply with applicable volume and
price limits and be identified as such.
The Company, its officers and directors and the Selling Stockholders have
agreed that they will not offer, sell, contract to sell, announce their
intention to sell, pledge or otherwise dispose of, directly or indirectly,
or, in the case of the Company, file with the Securities and Exchange
Commission (the "Commission") a registration statement under the Securities
Act relating to any additional shares of the Company's Common Stock or
securities convertible into or exchangeable or exercisable for any shares of
the Company's Common Stock without the prior written consent of CS First
Boston Corporation, in the case of the Company's officers and directors and
the Selling Stockholders, for a period of 90 days and, in the case of the
Company, for a period of 180 days, after the date of this Prospectus, except
issuances pursuant to the exercise of stock options granted under the 1994
Option Plan.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or to contribute to payments which the Underwriters may
be required to make in respect thereof.
52
<PAGE>
CS First Boston Corporation acted as placement agent in connection with
the First Fleet Financing Facility and Second Fleet Financing Facility and is
the placement agent for the Third Fleet Financing Facility.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Class A Common Stock in Canada is being made only
on a private placement basis exempt from the requirement that the Company
prepare and file a prospectus with the securities regulatory authorities in
each province where trades of Class A Common Stock are effected. Accordingly,
any resale of the Class A Common Stock in Canada must be made in accordance
with applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the Class
A Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Class A Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Stockholder and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities
laws to purchase such Class A Common Stock without the benefit of a
prospectus qualified under such securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent, and (iii)
such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets
of the issuer and such persons and the Selling Stockholders may be located
outside of Canada and, as a result, it may not be possible to satisfy a
judgment against the issuer or such persons and the Selling Stockholders in
Canada or to enforce a judgment obtained in Canadian courts against the
issuer or such persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Class A Common Stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale
of any Class A Common Stock acquired by such purchaser pursuant to this
Offering. Such report must be in the form attached to British Columbia
Securities Commission Blanket Order BOR #95/17, a copy of which may be
obtained from the Company. Only one such report must be filed in respect of
Class A Common Stock acquired on the same date and under the same prospectus
exemption.
53
<PAGE>
LEGAL MATTERS
The validity of the shares of the Class A Common Stock offered hereby will
be passed upon for the Company by King & Spalding, Atlanta, Georgia. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Hunton & Williams, Atlanta, Georgia.
EXPERTS
The consolidated financial statements of Team Rental Group, Inc. as of
December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995 included in this Prospectus and the related financial
statement schedules included elsewhere in the registration statement have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the registration statement
and are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The following financial statements included in this Prospectus have been
audited by other independent auditors as stated in their reports appearing
herein and elsewhere in the Registration Statement and are included in
reliance upon the reports of such firms given upon their authority as experts
in accounting and auditing:
(1) The financial statements as of December 31, 1994 and for each of
the three years in the period ended December 31, 1994 of BRAC-OPCO,
Inc.--Coopers & Lybrand L.L.P.; and
(2) The consolidated financial statements as of February 29, 1996 and
for each of the three years in the period ended February 29, 1996 of
Arizona Rent-A-Car Systems, Inc.--Michael Silver & Company.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and
copied at the public reference section of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, or at its Regional Offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048, and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of
such materials can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Class A Common Stock offered
hereby. This Prospectus, which is a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement.
For further information with respect to the Company and the Class A Common
Stock, reference is made to the Registration Statement and the exhibits and
schedules filed as a part thereof. Statements made herein concerning the
provisions of any documents are not necessarily complete, and in each
instance reference is made to the copy of such document filed as an exhibit
to the Registration Statement. Each such statement is qualified in its
entirety by such reference. The Registration Statement and the exhibits and
schedules thereto may be inspected, without charge, at the public reference
section or regional offices of the Commission at the address indicated above.
Copies of the Registration Statement can be obtained from the public
reference section of the Commission upon payment of prescribed fees.
54
<PAGE>
BUDGET RENT A CAR CORPORATION IS NOT SELLING, OFFERING FOR SALE OR
UNDERWRITING ALL OR ANY PART OF THE CLASS A COMMON STOCK. BUDGET RENT A CAR
CORPORATION DOES NOT ENDORSE OR MAKE ANY RECOMMENDATIONS WITH RESPECT TO THIS
OFFERING.
NEITHER THE OFFERING NOR THE CONTENTS OF THIS PROSPECTUS (AND
SPECIFICALLY, ANY FINANCIAL DATA CONTAINED HEREIN) HAVE BEEN PREPARED,
APPROVED OR ENDORSED BY BUDGET RENT A CAR CORPORATION, AND BUDGET RENT A CAR
CORPORATION ASSUMES NO OBLIGATION TO ANY INVESTOR IN CONNECTION WITH THIS
OFFERING OR THE ACCURACY OR ADEQUACY OF ANY PORTION OF THIS PROSPECTUS.
BUDGET RENT A CAR CORPORATION FURTHER DISCLAIMS ANY LIABILITY UNDER STATE
OR FEDERAL SECURITIES LAWS ARISING OUT OF OR IN CONNECTION WITH THIS
OFFERING, INCLUDING WITHOUT LIMITATION ANY LIABILITY AS A SELLER, AFFILIATE
OR CONTROLLING PERSON OF A SELLER OR AFFILIATE.
BUDGET RENT A CAR CORPORATION IS THE EXCLUSIVE OWNER OF THE BUDGET NAME
AND LOGO, A FEDERALLY REGISTERED TRADEMARK. NO INVESTOR SHOULD INTERPRET THE
USE AND DISPLAY OF SUCH NAME AND LOGO HEREIN AS APPROVAL, ENDORSEMENT,
ACCEPTANCE OR ADOPTION OF ANY REPRESENTATION OR STATEMENT CONTAINED HEREIN.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
TEAM RENTAL GROUP, INC.
Independent Auditors' Report ......................................................... F-2
Consolidated Balance Sheets--December 31, 1994 and 1995 and (unaudited) March 31,
1996 ................................................................................ F-3
Consolidated Statements of Operations for Each of the Three Years in the Period Ended
December 31, 1995 and the (unaudited) Three Months Ended March 31, 1995 and 1996 ... F-4
Consolidated Statements of Stockholders' Equity for Each of the Three Years in the
Period Ended December 31, 1995 and the (unaudited) Three Months Ended March 31, 1996 F-5
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended
December 31, 1995 and the (unaudited) Three Months Ended March 31, 1995 and 1996 ... F-6
Notes to Consolidated Financial Statements ........................................... F-7
BRAC-OPCO, INC.
Report of Independent Accountants .................................................... F-21
Balance Sheets--December 31, 1993 and 1994 ........................................... F-22
Statements of Income for Each of the Three Years in the Period Ended
December 31, 1994 ................................................................... F-24
Statements of Stockholder's Equity for Each of the Three Years in the Period Ended
December 31, 1994 ................................................................... F-25
Statements of Cash Flows for Each of the Three Years in the Period Ended
December 31, 1994 ................................................................... F-26
Notes to Financial Statements ........................................................ F-28
Consolidated Balance Sheet--September 30, 1995 (unaudited) ........................... F-37
Consolidated Statements of Operations for the Nine Months Ended September 30, 1995
(unaudited) ......................................................................... F-38
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
Independent Auditor's Report ......................................................... F-39
Consolidated Balance Sheets--February 28, 1994 and 1995, and February 29, 1996 ...... F-40
Consolidated Statements of Income (Loss) and Retained Earnings for Each of the Three
Years in the Period Ended February 29, 1996 ......................................... F-42
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended
February 29, 1996 ................................................................... F-43
Notes to Consolidated Financial Statements ........................................... F-45
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Team Rental Group, Inc.:
We have audited the consolidated balance sheets of Team Rental Group, Inc.
as of December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity (deficiency) and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Team Rental Group, Inc. as
of December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
April 12, 1996
F-2
<PAGE>
TEAM RENTAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1994 1995 1996
---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ........................... $ 878 $ 357 $ 4,674
Restricted cash and cash equivalents ................ 32,691 67,731 24,197
Trade and vehicle receivables, net of allowance for
doubtful accounts of $501 and $2,297 ............... 5,501 20,928 29,317
Accounts receivable, related parties ................ 59 61 61
Vehicle inventory ................................... 943 8,938 13,832
Revenue earning vehicles, net ....................... 97,127 219,927 314,591
Other property and equipment, net ................... 5,243 12,503 18,888
Deferred financing fees, net of accumulated
amortization of $102 and $425 ...................... 1,512 2,266 2,092
Franchise rights, net of accumulated amortization of
$641 and $1,500 .................................... 13,953 46,670 60,554
Other assets ........................................ 5,084 6,942 10,471
---------- ---------- -----------
Total ............................................. $162,991 $386,323 $478,677
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable (including amounts to related parties
of $5,792 in 1995) ....................... $126,564 $318,233 $400,229
Capital lease obligations .......................... 623 784 739
Accounts payable ................................... 1,366 14,698 11,870
Accrued and other liabilities ...................... 4,529 9,315 18,684
Deferred income taxes .............................. 1,161 1,701 1,559
---------- ---------- -----------
Total liabilities ................................. 134,243 344,731 433,081
---------- ---------- -----------
COMMITMENTS (NOTE 12)
COMMON STOCK WARRANT ................................ 2,000 2,000 2,000
---------- ---------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 250,000 shares
authorized, no shares issued ......................
Class A common stock, $.01 par value, one vote per
share, 17,500,000 shares authorized, 4,036,300,
5,257,116 and 5,529,843 shares issued .............. 40 52 54
Class B common stock, $.01 par value, ten votes
per share, 2,500,000 shares authorized, 1,936,600
shares issued and outstanding ..................... 20 20 20
Additional paid-in capital ......................... 29,159 41,984 44,709
Accumulated deficit ................................ (2,471) (2,134) (857)
Treasury stock at cost (36,667 shares of Class A
common stock) ..................................... (330) (330)
---------- ---------- -----------
Total stockholders' equity ........................ 26,748 39,592 43,596
---------- ---------- -----------
Total ............................................. $162,991 $386,323 $478,677
========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
TEAM RENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- ---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Vehicle rental revenue ............ $22,321 $38,642 $107,067 $17,354 $44,697
Retail car sales revenue .......... 42,662 4,916 21,097
--------- --------- ---------- ---------- ---------
Total operating revenue .......... 22,321 38,642 149,729 22,270 65,794
--------- --------- ---------- ---------- ---------
OPERATING COSTS AND EXPENSES:
Direct vehicle and operating ...... 5,452 9,439 13,704 2,625 5,959
Depreciation--vehicles ............ 4,358 7,382 27,476 5,126 11,804
Depreciation--nonvehicle .......... 229 446 1,341 285 536
Cost of vehicle sales ............. 38,021 4,258 17,840
Advertising, promotion
and selling ..................... 1,658 3,090 11,826 2,036 4,600
Facilities ........................ 2,695 4,398 11,121 2,076 4,328
Personnel ......................... 4,537 7,947 24,515 4,494 10,689
General and administrative ........ 790 1,515 6,686 886 2,270
Amortization of franchise rights .. 152 229 859 112 514
--------- --------- ---------- ---------- ---------
Total operating costs and
expenses ....................... 19,871 34,446 135,549 21,898 58,540
--------- --------- ---------- ---------- ---------
Operating income .................... 2,450 4,196 14,180 372 7,254
--------- --------- ---------- ---------- ---------
OTHER (INCOME) EXPENSE:
Interest expense--vehicles ........ 2,462 3,909 13,874 2,616 5,621
Interest expense--other ........... 181 341 473 67 136
Interest income--restricted cash .. (670) (1,348) (400) (749)
Interest expense--related party ... 220 190 159 118
Nonrecurring income ............... (1,023)
--------- --------- ---------- ---------- ---------
Other expense--net ............... 1,840 3,770 13,158 2,283 5,126
--------- --------- ---------- ---------- ---------
Income (loss) before income taxes .. 610 426 1,022 (1,911) 2,128
Provision (credit) for income taxes 182 176 685 (765) 851
--------- --------- ---------- ---------- ---------
Net income (loss) ................... $ 428 $ 250 $ 337 $(1,146) $ 1,277
========= ========= ========== ========== =========
Weighted average common shares
outstanding ....................... 3,704 6,369 6,037 7,256
========= ========== ========== =========
Earnings (loss) per common share ... $ 0.07 $ 0.05 $ (0.19) $ 0.18
========= ========== ========== =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
TEAM RENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDERS'
COMMON PAID-IN ACCUMULATED TREASURY EQUITY
STOCK CAPITAL DEFICIT STOCK (DEFICIENCY)
-------- ------------ ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1993 ..... $15 $ 514 $(1,873) $(1,344)
Net income ....................... 428 428
Distributions on redeemable
preferred stock ................. (275) (275)
Dividends to common stockholders (60) (60)
-------- ------------ ------------- ---------- ---------------
Balances at December 31, 1993 ... 15 239 (1,505) (1,251)
Net income ....................... 250 250
Distributions on redeemable
preferred stock ................. (183) (183)
Dividends to common stockholders (47) (47)
Net proceeds from initial public
offering ........................ 45 28,903 28,948
Deferred taxes due to a change in
tax status ...................... (1,169) (1,169)
Shares issued in business
combinations .................... 200 200
-------- ------------ ------------- ---------- ---------------
Balances at December 31, 1994 ... 60 29,159 (2,471) 26,748
Net income ....................... 337 337
Shares issued in business
combinations .................... 12 12,825 12,837
Class A common stock acquired for
treasury ........................ $(330) (330)
-------- ------------ ------------- ---------- ---------------
Balances at December 31, 1995 ... 72 41,984 (2,134) (330) 39,592
Net income (unaudited) ........... 1,277 1,277
Shares issued in business
combination (unaudited) ......... 2 2,725 2,727
-------- ------------ ------------- ---------- ---------------
Balances at March 31, 1996
(unaudited) ..................... $74 $44,709 $ (857) $(330) $43,596
======== ============ ============= ========== ===============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TEAM RENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................... $ 428 $ 250 $ 337
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation .............................................. 4,587 7,828 28,817
Amortization .............................................. 152 534 1,761
Deferred income tax provision ............................. (8) 540
Provision for doubtful accounts ........................... (112) (282) 1,796
Discount on acquisition note .............................. 58
Changes in certain assets and liabilities, net of effects
of acquisitions:
Receivables ............................................... (297) (871) (11,189)
Other assets .............................................. (323) (1,788) 387
Car sales inventory ....................................... (7,995)
Accounts payable .......................................... 247 (2,259) 9,484
Accrued and other liabilities ............................. 305 256 (7,790)
---------- ----------- -----------
Net cash provided by operating activities ................ 5,045 3,660 16,148
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash ............................................ (32,691) (13,271)
Proceeds from sale of revenue earning vehicles ............ 48,516 73,728 293,905
Proceeds from sale of other property and equipment ........ 51
Purchases of revenue earning vehicles ...................... (52,767) (155,176) (315,863)
Purchases of other property and equipment .................. (229) (637) (4,562)
Purchase of franchise rights ............................... (1,839)
Payment for acquisitions, net of cash acquired ............ (5,727) (6,507)
---------- ----------- -----------
Net cash used in investing activities .................... (4,480) (122,291) (46,298)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net ................. 28,948
Net increase (decrease) in vehicle obligations ............ (33) (5,760) 20,947
Proceeds from notes payable:
Medium term notes ......................................... 105,682
Working capital facilities ................................ 6,890
Related party ............................................. 559 1,392
Other ..................................................... 2,610 3,399
Principal payments:
Related party ............................................. (33) (3,200) (276)
Capital leases ............................................ (66) (410) (666)
Other ..................................................... (747) (5,665) (259)
Deferred financing fees .................................... (1,614) (76)
Distributions on redeemable preferred stock ................ (275) (183)
Repayment of redeemable preferred stock .................... (2,747)
Dividends to common stockholders ........................... (60) (47)
Purchase of treasury stock ................................. (330)
---------- ----------- -----------
Net cash provided by (used in) financing activities .... (655) 119,006 29,629
---------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ....... (90) 375 (521)
Cash and cash equivalents, beginning of period .............. 593 503 878
---------- ----------- -----------
Cash and cash equivalents, end of period .................... $ 503 $ 878 $ 357
========== =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................... $ (1,146) $ 1,277
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation .............................................. 5,411 12,340
Amortization .............................................. 296 514
Deferred income tax provision ............................. (520) (142)
Provision for doubtful accounts ...........................
Discount on acquisition note ..............................
Changes in certain assets and liabilities, net of effects
of acquisitions:
Receivables ............................................... (2,790) (8,389)
Other assets .............................................. (3,650) (3,529)
Car sales inventory ....................................... (4,894)
Accounts payable .......................................... 3,679 (2,828)
Accrued and other liabilities ............................. 7,172 9,369
----------- -----------
Net cash provided by operating activities ................ 8,452 3,718
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash ............................................ 14,925 43,534
Proceeds from sale of revenue earning vehicles ............ 60,831 43,878
Proceeds from sale of other property and equipment ........
Purchases of revenue earning vehicles ...................... (109,091) (106,812)
Purchases of other property and equipment .................. (2,176) (6,921)
Purchase of franchise rights ............................... (11,497)
Payment for acquisitions, net of cash acquired ............ (7,103)
----------- -----------
Net cash used in investing activities .................... (42,614) (37,818)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net .................
Net increase (decrease) in vehicle obligations ............ 29,112 13,540
Proceeds from notes payable:
Medium term notes .........................................
Working capital facilities ................................ 6,950 24,922
Related party .............................................
Other .....................................................
Principal payments:
Related party .............................................
Capital leases ............................................ (177) (45)
Other ..................................................... (58)
Deferred financing fees ....................................
Distributions on redeemable preferred stock ................
Repayment of redeemable preferred stock ....................
F-6
<PAGE>
THREE MONTHS ENDED
MARCH 31,
------------------------
1995 1996
----------- -----------
(UNAUDITED)
Dividends to common stockholders ...........................
Purchase of treasury stock .................................
----------- -----------
Net cash provided by (used in) financing activities .... 35,827 38,410
----------- -----------
Net increase (decrease) in cash and cash equivalents ....... 1,665 4,317
Cash and cash equivalents, beginning of period .............. 878 357
----------- -----------
Cash and cash equivalents, end of period .................... $ 2,543 $ 4,674
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(INTERIM FINANCIAL INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED. THE UNAUDITED INTERIM
FINANCIAL STATEMENTS REFLECT ALL ADJUSTMENTS, CONSISTING OF NORMAL RECURRING
ADJUSTMENTS WHICH ARE, IN THE OPINION OF MANAGEMENT, NECESSARY TO A FAIR
STATEMENT OF THE RESULTS FOR THE INTERIM PERIODS. INFORMATION FOR THE INTERIM
PERIODS IS NOT NECESSARILY INDICATIVE OF RESULTS TO BE ACHIEVED FOR THE FULL
YEAR.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--Team Rental Group, Inc. (the "Company") is
engaged in the business of the daily rental of vehicles, including cars,
trucks and passenger vans, and the retail sale of used vehicles. The Company
operates Budget Rent a Car ("Budget") franchises granted by Budget Rent a Car
Corporation ("BRAC") through its operating subsidiaries serving twelve
metropolitan regions in the U.S. including Philadelphia and Pittsburgh,
Pennsylvania; San Diego, California; Southern California (excluding San
Diego); Cincinnati and Dayton, Ohio; Albany and Rochester, New York;
Charlotte, North Carolina; Richmond, Virginia; Hartford, Connecticut and Fort
Wayne, Indiana. MCK Realty, Inc. ("MCK") is owned by the Company's principal
stockholders. Because MCK is controlled by the Company's principal
stockholders and the Company has guaranteed the lease payments assigned to a
bank, MCK is included in the consolidated financial statements.
BASIS OF PRESENTATION--The 1993 financial statements consist of
companies affiliated through common ownership and control and reflect the
consolidated accounts of each company. Concurrent with the initial public
offering (Note 2), the Company exchanged 563,400 shares of Class A common
stock and 1,936,450 shares of Class B common stock for all of the outstanding
common stock of the combined companies, which accordingly, became wholly
owned subsidiaries (the "Share Exchange"). The 1994 and 1995 consolidated
financial statements include the accounts of Team Rental Group, Inc. and its
wholly owned subsidiaries. All significant intercompany accounts have been
eliminated.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management of the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments including money market funds, commercial paper and time deposits
purchased with an original maturity of three months or less to be cash
equivalents.
RESTRICTED CASH AND CASH EQUIVALENTS--Restricted cash and cash equivalents
consists of Medium Term Notes (Note 2) proceeds not currently invested in
eligible revenue earning vehicles. Under the terms of the Medium Term Notes
Indentures, the Company is required to invest the proceeds in either
restricted cash investments as defined by the indenture or revenue earning
vehicles.
REVENUE EARNING VEHICLES--Revenue earning vehicles are stated at cost,
after deducting related discounts and manufacturers' incentives, and are
depreciated over their estimated economic lives or at rates corresponding to
manufacturers' repurchase program guidelines, where applicable. Depreciation
rates range from .5% to 3% per month. Management periodically reviews
depreciable lives and rates based on a variety of factors including general
economic conditions and estimated holding periods of the vehicles. Gains and
losses upon the sale of revenue earning vehicles are recorded as an
adjustment to depreciation expense.
ADVERTISING, PROMOTION AND SELLING--Advertising, promotion and selling
expense are charged to expense as incurred. The Company incurred advertising
expense of $275, $412 and $2,347 in 1993, 1994 and 1995, respectively.
F-7
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RETAIL CAR SALES INVENTORY--Retail car sales inventory is stated at the
lower of cost (first-in, first-out method) or market.
OTHER PROPERTY AND EQUIPMENT--Other property and equipment is recorded at
cost. Depreciation is being provided on the straight-line method over the
following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Buildings .....................................10 - 23 years
Equipment, furniture and fixtures ............. 3 - 10 years
Lesser of estimated useful lives or terms of
Capital leases and leasehold improvements .... related leases
</TABLE>
DEFERRED FINANCING FEES--Direct costs incurred in connection with the
Company's borrowings have been deferred and are being amortized over the
terms of the related loan agreements on the straight-line basis.
PREPAID ROYALTY FEES--Prepaid royalty fees of $1,797 and $1,217 (net of
accumulated amortization of $203 and $783) at December 31, 1994 and 1995,
respectively, are related to the abatement of fees at the Company's
Philadelphia operations through June 15, 1999 and are recorded in other
assets. The prepaid fees are being amortized using an accelerated method over
the royalty abatement period of five years.
FRANCHISE RIGHTS--Franchise agreements are renewable for an unlimited
number of one- and five-year periods, subject to certain terms and
conditions. Franchise rights are amortized using the straight-line method
over forty years. The Company believes that the vehicle rental industry and,
therefore, vehicle rental franchises have an expected life in excess of forty
years and the industry will continue as long as the automobile is an accepted
method of transportation. The specific markets the Company serves are
considered to be stable and are locations which are major national or
regional commercial centers that attract business and leisure travelers who
need rental vehicles. Circumstances that would indicate possible impairment
to franchise rights include the failure of Budget Rent a Car to maintain its
international network of rental car franchisers, the termination of the
Company's presence in one or more major airport markets, or a significant
permanent decline in cash flows from rental operations. The impairment would
be measured as the amount by which the carrying value of the related asset
exceeds the present value of estimated annual discounted cash flows generated
by the franchise operations utilizing an appropriate discount rate. Effective
January 1, 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, which requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amounts of these assets may not be recoverable. There was no
material effect on the Company's consolidated financial statements upon
adoption of SFAS No. 121 in 1995.
INCOME TAXES--Deferred tax assets and liabilities are computed based on
differences between the financial statement and income tax bases of assets
and liabilities using enacted tax rates. Deferred income tax expense or
benefit is based on the change in deferred tax assets and liabilities from
period to period, subject to an ongoing assessment of realization.
EARNINGS PER COMMON SHARE--Earnings per common share for the year ended
December 31, 1994 was computed assuming all of the outstanding common stock
of the combined companies (which totaled 2,500,000 shares) was outstanding
the entire year and the shares issued in connection with the initial public
offering and the Fort Wayne acquisition were outstanding from the dates
issued. Earnings per common share for the year ended December 31, 1995 was
based on the weighted average number of common shares outstanding during the
year considering the 1995 and 1996 acquisitions and the purchase of treasury
stock. The assumed issuance of the shares for the common stock warrant to
BRAC and the exercise of stock options does not have a materially dilutive
effect.
F-8
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RETENTION OF SELF INSURED RISKS--At December 31, 1995, the Company has
automobile liability insurance coverage of up to $1,000, with a $500
retention per occurrence with respect to personal injury and damage claims
arising from the use of its vehicles. The Company provides reserves on
reported claims and claims incurred but not reported at each balance sheet
date based on actuarial estimates. The actuarially determined reserves are
necessarily based on estimates, and while management believes that the
amounts are adequate, the ultimate liability may be in excess of, or less
than, the amounts provided. Such estimates are reviewed and evaluated in
light of emerging claim experience and existing circumstances. Any changes in
estimates from this review process are reflected in operations currently.
STOCK OPTIONS--In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, Accounting for Stock-Based Compensation, which
encourages, but does not require, companies to adopt the fair value based
method of accounting for stock-based employee compensation plans. Under the
fair value method, compensation cost is measured at the grant date based on
the fair value of the award and is recognized over the service period, which
is usually the vesting period. Companies are also permitted to continue to
account for such transactions under Accounting Principles Board Opinion No.
25, but would be required to disclose on a pro forma basis, net income and,
if presented, earnings per share, as if the fair value based method of
accounting had been applied.
The accounting requirements of the new method are effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
has not yet determined if it will elect to change to the fair value based
method, nor has it determined the effect the new standard will have on net
income and earning per share should it elect to make such a change. Adoption
of the new standard will not have an effect on the Company's cash flows.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1993
and 1994 consolidated statements to conform with the 1995 presentation.
2. INITIAL PUBLIC OFFERING AND MEDIUM TERM NOTES
The Company sold 3,300,000 shares of Class A common stock on August 25,
1994 and 154,400 shares of Class A common stock on September 19, 1994 at
$9.50 per share to investors in an initial public offering resulting in gross
proceeds of $32,800 to the Company. Net proceeds to the Company after
offering expenses were $28,948. The net proceeds were used to acquire certain
assets (certain liabilities were also assumed) of Freedom River, Inc.
("Freedom River"), capitalize Team Fleet Finance Corporation ("TFFC") a
wholly owned subsidiary, acquire vehicles under operating leases, redeem the
outstanding redeemable preferred stock, acquire the Budget Rent a Truck
franchise rights for San Diego, California, repay loans and accrued interest
to related and non-related third parties, and purchase equipment leased from
related parties.
Concurrent with the initial public offering, TFFC issued senior and
subordinated asset-backed notes ("Medium Term Notes") of $100,000 and $5,682,
respectively, in a private placement pursuant to an Indenture between TFFC
and Bankers Trust Company, as Trustee. The proceeds of the Medium Term Notes
are available to finance the purchase of rental fleet vehicles subject to
manufacturers' repurchase programs sponsored by Chrysler, General Motors and
Ford.
F-9
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
3. ACQUISITIONS
During 1994, 1995 and the three months ended March 31, 1996, the Company
acquired certain Budget franchise operations. The acquisitions have been
accounted for under the purchase method of accounting and, accordingly, the
Company has allocated the cost of the acquisitions on the basis of the
estimated fair value of the assets acquired and liabilities assumed. The 1995
and 1996 allocations are based on preliminary estimates and may be revised at
a later date. The accompanying consolidated statements of operations and cash
flows reflect the operations of the acquired companies from their respective
acquisition dates through the years ended December 31, 1994 and 1995, and the
three months ended March 31, 1995 and 1996.
1994 ACQUISITIONS
FREEDOM RIVER--Concurrent with the initial public offering, the Company
acquired certain assets and assumed certain operating liabilities of Freedom
River from Chrysler Credit Corporation ("CCC"), a secured creditor of Freedom
River, pursuant to a private foreclosure sale conducted by CCC. The assets
acquired consisted of the Budget vehicle rental operations in the
Philadelphia and Pittsburgh, Pennsylvania and Cincinnati, Ohio metropolitan
areas. Substantially all of Freedom River's assets, other than its fleet,
were purchased for approximately $10,600.
FORT WAYNE FRANCHISE--In November 1994, the Company exchanged 18,500
shares of Class A common stock with a value of $200 for all of the
outstanding common stock of Fort Wayne Rental Group, Inc. located in Fort
Wayne, Indiana. A principal stockholder and director of the Company, who was
a stockholder of Fort Wayne Rental Group, Inc., received 7,400 shares of
Class A common stock with a value of $80 in this transaction.
1995 ACQUISITIONS
DAYTON FRANCHISE--In January 1995, the Company purchased all of the
outstanding stock of Don Kremer, Inc., located in Dayton, Ohio, for $1,300.
The acquisition funding consisted of $650 cash and two notes totaling $650.
CHARLOTTE FRANCHISE--In January 1995, the Company purchased all of the
outstanding stock of MacKay Car & Truck Rentals, Inc., located in Charlotte,
North Carolina, for approximately $8,405 consisting of cash of $8,277 and
13,483 shares of Class A common stock.
HARTFORD FRANCHISE--In March 1995, the Company purchased all of the
outstanding stock of Rental Car Resources, Inc., located in Hartford,
Connecticut, for approximately $1,475 by issuing 157,333 shares of Class A
common stock.
OPCO FRANCHISE--In October 1995, the Company purchased all of the
outstanding stock of BRAC-OPCO, Inc., which operates Budget franchises in the
greater Los Angeles area, excluding the vehicle rental operations at Los
Angeles International Airport of Southern California and certain other
territories as set forth in the franchise agreement, for approximately $11,
234 by issuing 1,050,000 shares of Class A common stock.
The Company's results of operations as shown in the following table are
presented as if the acquisitions had occurred at the beginning of 1994. The
unaudited pro forma results are not necessarily indicative of the actual
results of operations that would have occurred had the acquisitions actually
been made at the beginning of 1994.
F-10
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
3. ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Operating revenue ............................... $155,343 $199,743
Income (loss) before provision for income taxes 3,634 (271)
Net income (loss) ............................... 1,781 (516)
Earnings (loss) per common share ................ 0.25 (0.07)
</TABLE>
Subsequent to December 31, 1995, the Company made two acquisitions as
listed below. The acquisitions will be accounted for under the purchase
method of accounting and, accordingly, the Company will allocate the cost of
the acquisitions on the basis of the estimated fair value of assets acquired
and liabilities assumed. Franchise rights acquired will be amortized over
forty years. The Company's consolidated statement of operations will not
include the revenues and expenses of the acquired businesses until 1996.
1996 ACQUISITIONS
VAN POOL OPERATIONS--In February 1996, the Company purchased for a nominal
amount all of the outstanding stock of VPSI, Inc. ("VPSI") located in
Detroit, Michigan. The Company borrowed $36,700 under a new financing
facility to finance the van fleet. VPSI provides commuter van pooling
services to business commuters in 22 states.
PHOENIX FRANCHISE--In February 1996, the Company purchased all of the
outstanding stock of Arizona Rent-A-Car Systems, Inc. located in Phoenix,
Arizona for approximately $18,000 consisting of cash of approximately $5,000,
a promissory note of $10,000 and 272,727 shares of Class A common stock.
The Company's results of operations as shown in the following table are as
if the 1995 and 1996 acquisitions had occurred at the beginning of 1995.
These unaudited pro forma results are not necessarily indicative of the
actual results of operations that would have occurred had the acquisitions
actually been made at the beginning of 1995.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Operating revenue ............................... $63,019 $76,831
Income (loss) before provision for income taxes 764 (921)
Net income (loss) ............................... 458 (553)
Earnings (loss) per common share ................ 0.06 (0.07)
</TABLE>
4. REVENUE EARNING VEHICLES
Revenue earning vehicles consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Revenue earning vehicles ....................... $102,014 $245,849
Less accumulated depreciation and amortization (4,887) (25,922)
---------- ----------
$ 97,127 $219,927
========== ==========
</TABLE>
Depreciation expense was adjusted for losses of $111, $24 and $90 upon the
sale of revenue earning vehicles during the years ended December 31, 1993,
1994 and 1995, respectively.
F-11
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
5. OTHER PROPERTY AND EQUIPMENT
Other property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Buildings ...................................... $ 4,632 $10,160
Leasehold improvements ......................... 1,055 3,994
Furniture, fixtures and office equipment ...... 2,913 7,069
--------- ---------
8,600 21,223
Less accumulated depreciation and amortization (3,357) (8,720)
--------- ---------
$ 5,243 $12,503
========= =========
</TABLE>
Included in other property and equipment at December 31, 1994 and 1995 are
$256 and $827, respectively, of assets held under capital leases.
6. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Medium Term Notes:
Senior .................... $100,000 $138,500
Subordinated .............. 5,682 7,182
Vehicle obligations ........ 18,097 149,965
Working capital facilities 2,610 9,500
Related party obligations . 5,792
Other notes payable ........ 175 7,294
---------- ----------
$126,564 $318,233
========== ==========
</TABLE>
MEDIUM TERM NOTES--Medium term notes are comprised of Notes issued by TFFC
in August 1994 ("TFFC notes") and notes assumed in the acquisition of
BRAC-OPCO, Inc. in October 1995 ("OPCO notes").
The TFFC notes are comprised of senior notes requiring monthly interest
payments at average LIBOR, as defined, plus 0.75% (6.75% at December 31,
1995). Monthly principal payments of $16,667 commence in June 1999 with the
last payment due in November 1999. The subordinated notes require monthly
interest payments at average LIBOR, as defined, plus 1.30% per annum (7.3% at
December 31, 1995) and are payable in full in December 1999.
The OPCO notes are comprised of senior notes requiring monthly interest
payments at average LIBOR, as defined, plus 0.60% (6.60% at December 31,
1995). Monthly principal payments of $4,812 commence in November 1997 with
the last payment due in June 1998. The subordinated notes require monthly
interest payments at average LIBOR, as defined, plus 1.0% per annum (7.0% at
December 31, 1995) and are payable in full in December 1998.
The Company has two consolidated subsidiaries that have net assets
totaling $10.3 million which are restricted from transfer or distribution to
the parent company. These net assets are restricted in accordance with terms
of the Medium Term Notes.
F-12
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
6. NOTES PAYABLE (Continued)
VEHICLE OBLIGATIONS--Vehicle obligations consist of outstanding lines of
credit to purchase rental fleet and used vehicle inventory. Available
collateralized lines of credit at December 31, 1995 consist of $150,000 for
rental vehicles and $25,700 for used vehicle inventory with maturity dates
ranging from February 1996 to April 1997. Vehicle obligations are
collateralized by revenue earning vehicles financed under these credit
facilities and proceeds from the sale, lease or rental of vehicles and used
vehicle inventory.
Rental vehicle obligations are generally amortized over 5 to 15 months
resulting in monthly principal payments ranging from 2% to 3% of the
capitalized vehicle cost. When rental vehicles are sold, the related unpaid
obligation is due. Interest payments for rental fleet facilities are due
monthly at annual interest rates ranging from 8.0% to 9.75% at December 31,
1995. Management expects vehicle obligations will generally be repaid within
one year from the balance sheet date with proceeds received from either the
repurchase of the vehicles by the manufacturers in accordance with the terms
of the manufacturers' rental fleet programs or from the sale of the vehicles.
Monthly payments of interest only for used vehicle inventory obligations
are required at annual interest rates ranging from 8.25% to 9.75% at December
31, 1995. Used vehicle inventory obligations are paid when the inventory is
sold but in no event later than 120 days after the date of purchase.
WORKING CAPITAL FACILITIES--Working capital facilities of up to $13,000
are for the purchase of used vehicle inventory and working capital, require
monthly interest payments on the outstanding balance at LIBOR plus 1.85%
(7.53% at December 31, 1995) and expire November 1996. The facilities are
collateralized by accounts receivable, inventory, equipment, general
intangibles, investments and all other personal property of the Company and
guarantees of the respective subsidiaries. Under the terms of one of the
agreements, the Company is required to pay commitment fees quarterly equal to
0.125% per annum on the maximum amount of credit available under the credit
facility and an annual agent fee of $50 as long as the facility has an
outstanding balance. This agreement is subject to certain covenants, the most
restrictive of which requires the Company to maintain certain financial
ratios and minimum tangible net worth and prohibits the payment of cash
dividends. At December 31, 1995, the Company was not in compliance with
certain debt requirements and obtained waivers of such covenants. In February
1996, certain covenants were amended and the Company is in compliance with
the amended terms of the agreement.
RELATED PARTY OBLIGATIONS--At December 31, 1995, related party obligations
due to stockholders related primarily to the acquisition of certain franchise
territories and consist of an unsecured promissory note bearing interest at
8.75% per annum due January 1996; an unsecured promissory note bearing
interest at 9% per annum, payable in monthly installments of $4.3 plus
interest due March 2000; and two unsecured promissory notes bearing interest
at 8% per annum, payable in quarterly installments of $6.5 and $32.5 plus
interest and due October 1999 and October 1997, respectively.
OTHER NOTES PAYABLE--Other notes payable consist primarily of a secured
promissory note that bears interest at 8% per annum payable in annual
installments of $750, due August 1999, collateralized by personal guarantees
from the previous owners of Southern California operations; a business credit
note due November 1996 bearing interest at prime (8.75% December 31, 1995)
collateralized by real estate property and secured by personal guarantees of
certain stockholders of the Company; a collateralized promissory note bearing
interest at 8% per annum, payable in monthly installments of $7 plus
interest, due September 2010, collateralized by real estate property and
personal guarantees of certain stockholders of the Company; a mortgage note
bearing interest at 9.10% per annum, payable in monthly installments ranging
from $5.4 to $7.8 plus interest, due September 2000 with an option to extend
to September 2005, collateralized by real estate property; and a mortgage
note bearing interest at 7.5% per annum, payable in monthly installments of
$8.3 plus interest, due June 1998, collateralized by real estate property.
F-13
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
6. NOTES PAYABLE (Continued)
Future principal payments at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- -------------- ----------
<S> <C>
1996 .......... $165,147
1997 .......... 1,304
1998 .......... 41,183
1999 .......... 106,796
2000 .......... 3,086
Thereafter .... 717
----------
$318,233
==========
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company leases facilities from certain stockholders. Operating lease
payments for the year ended December 31, 1993, 1994 and 1995 were $33, $196
and $220, respectively. Capital lease payments for the year ended December
31, 1993 were $31. There were no capital lease payments to the stockholders
during 1994 or 1995. MCK has assigned lease payments from the Company to a
bank.
At December 31, 1995, the Company was leasing approximately $2,001 of
revenue earning vehicles to Arizona Rent-A-Car Systems, a franchise the
Company acquired in 1996 (see Note 3).
Prior to the acquisition of the Fort Wayne operations (see Note 3), the
Company leased fleet vehicles to Fort Wayne Rental Group, Inc. for
approximately $60 and $366 for the years ended December 31, 1993 and 1994,
respectively.
At December 31, 1994, the Company was leasing approximately $1,200 of
revenue earning vehicles to the Dayton Budget franchise which the Company
acquired in 1995 (see Note 3) and had trade vehicle receivables of $43 at
that date from the Dayton franchise.
At December 31, 1994 and 1995, the Company has non-interest bearing notes
receivable totaling $59, $61, respectively, due from a stockholder and
director which are payable on demand.
Approximately $635, $564 of cash and cash equivalents are on deposit with
or are being held as agent for the Company with a bank at December 31, 1994
and 1995, respectively. A stockholder and director of the Company serves on
the bank's board of directors.
8. LEASES
The Company leases revenue earning vehicles and facilities under leases
that expire at various dates through August 2013. Generally, the facility
leases are subject to payment increases based on cost of living indices and
require the Company to pay taxes, maintenance, insurance and certain other
operating expenses. Certain facility leases require the Company to pay fixed
amounts plus contingent rentals based on gross rental revenues, as defined,
and gasoline sales.
F-14
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
8. LEASES (Continued)
Future minimum payments under noncancellable leases at December 31, 1995
are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
------------------------
YEAR ENDING CAPITAL RELATED NON-RELATED
DECEMBER 31, LEASES PARTIES PARTIES
- ----------------------------------- --------- --------- -------------
<S> <C> <C> <C>
1996 ............................... $280 $ 186 $ 6,743
1997 ............................... 214 193 5,427
1998 ............................... 170 164 3,191
1999 ............................... 166 99 2,234
2000 ............................... 125 102 2,283
Thereafter ......................... 1,247 4,928
--------- --------- -------------
955 $1,991 $24,806
========= =============
Less amounts representing interest 171
---------
$ 784
=========
</TABLE>
Rent expense consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
-------- -------- ---------
<S> <C> <C> <C>
Revenue earning vehicles $ 905 $3,121 $ 1,518
Facilities:
Minimum rentals ........ 878 1,990 5,914
Contingent rentals .... 1,649 1,923 3,502
-------- -------- ---------
Total ................... $3,432 $7,034 $10,934
======== ======== =========
</TABLE>
9. INCOME TAXES
The provision (credit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1993 1994 1995
------ ------ -------
<S> <C> <C> <C>
Current:
Federal .. $ 21 $184
State ..... 161 $ 145
Deferred:
Federal .. (23) 470
State ..... 15 70
------ ------ -------
Total ...... $182 $176 $685
====== ====== =======
</TABLE>
F-15
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
9. INCOME TAXES (Continued)
The provision (credit) for income taxes differs from the amount computed
using the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1993 1994 1995
------- ------- ------
<S> <C> <C> <C>
Income tax provision at federal statutory rate .......... $ 208 $ 130 $348
Effect of (earnings) losses of nontaxable (subchapter S)
companies ............................................... (199) 645
Deductible preferred stock dividends ..................... (110)
Nondeductible portion of amortization of franchise rights 40 12 94
State tax provision, net of federal benefit .............. 161 30 215
Benefit of net operating loss carryforwards .............. (645)
Tax loss carryforwards not recognized .................... 57
Other .................................................... 25 4 28
------- ------- ------
$ 182 $ 176 $685
======= ======= ======
</TABLE>
The tax effects of temporary differences that give rise to the Company's
deferred tax assets and liabilities are as follows at December 31:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1994 1995
-------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ...................... $1,048 $13,195
Non-deductible reserves ............................... 292 2,267
Alternative minimum tax carryforward .................. 197 197
Valuation allowance ................................... (7,378)
-------- ---------
1,537 8,281
-------- ---------
Deferred tax liabilities:
Difference between book and tax bases of revenue
earning vehicles and other property and equipment ... 2,613 8,690
Franchise rights ...................................... 85 1,292
-------- ---------
2,698 9,982
-------- ---------
Net deferred tax liability ............................ $1,161 $ 1,701
======== =========
</TABLE>
Concurrent with the Share Exchange, the nontaxable status of the commonly
owned companies was terminated and a deferred tax liability of approximately
$1,169 was recorded with a corresponding charge to the accumulated deficit.
The change in the deferred tax liability after the Share Exchange has been
reflected as a deferred income tax provision for the years ended December 31,
1994 and 1995, respectively.
At December 31, 1995, the Company and its subsidiaries have federal tax
loss carryforwards of approximately $36,942 expiring between December 2005
and December 2010. The Company has recorded a valuation allowance for a
portion of the acquired net operating loss carryforwards due to the
uncertainty of their ultimate realization. Any subsequently recognized tax
benefits attributed to the change in the valuation allowance will reduce
franchise rights.
The Internal Revenue Code places limitations on the utilization of net
operating losses and similar tax attributes by a corporation in the event of
a stock ownership change aggregating more than 50% over
F-16
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
9. INCOME TAXES (Continued)
a specified time period. Net operating loss carryforwards in existence when
ownership changes occur are subject to an annual utilization limitation that
may restrict the future utilization of the net operating losses. Similarly,
utilization of losses generated during years when separate returns have been
filed may be limited in the future. Such limitations have been considered in
the determination of deferred income taxes.
10. BENEFIT PLANS
STOCK OPTIONS--On April 25, 1994, the Company adopted the 1994 Incentive
Stock Option Plan (the "ISO Plan") and the 1994 Directors' Stock Option Plan
(the "Directors' Plan").
The ISO Plan provides for the issuance of up to 260,000 shares of Class A
common stock to key employees. The ISO Plan stock options may be either
incentive stock options or nonqualified options and expire ten years after
the date of grant. The exercise price of incentive stock options may not be
less than the fair market value of the underlying shares at the date of
grant. The exercise price for nonqualified options may not be less than 85%
of the fair market value of the underlying shares or, if greater, the book
value of the underlying shares at the date of grant.
The Directors' Plan provides for the issuance of 25,000 shares of Class A
common stock to selected directors of the Company. The Directors' Plan stock
options are nonqualified and expire ten years after the date of grant. The
exercise price of the nonqualified options under the Directors' Plan is the
fair market value of the underlying shares at the date of grant.
The following is an analysis of stock option activity for each of the
three years in the period ended December 31, 1995 and the stock options
outstanding at December 31, 1995:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS SHARES PRICE
- -------------------------------------------------- --------- ----------
<S> <C> <C>
Outstanding, January 1, 1993 to December 31, 1994
Granted during 1995 ............................... 192,600 $9.50
---------
Outstanding, December 31, 1995 .................... 192,600 9.50
=========
</TABLE>
At December 31, 1995, none of the outstanding stock options were
exercisable prior to September 1, 1996 and expire March 1, 2005. The options
are nontransferable and will be forfeited upon termination of employment, as
defined.
PROFIT SHARING PLAN--The Company adopted a Profit Sharing Plan with a
401(k) arrangement under the Internal Revenue Code effective January 1, 1996.
Employees are eligible to participate after completing one year of service
and attaining age 21. Participants may contribute 1% - 15% of their gross
compensation. The Company may make discretionary contributions not to exceed
15% of the total plan compensation. There were no contributions made during
1995 or the first quarter of 1996.
F-17
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
11. COMMON STOCK WARRANT
Concurrently with the Freedom River acquisition and in consideration of
the abatement of certain future royalty fees to BRAC with respect to Freedom
River's Philadelphia vehicle rental operation and other consideration
received from BRAC, the Company issued a warrant to BRAC (the "BRAC Warrant")
to purchase 175,000 shares of Class A common stock at the initial public
offering price. The warrant cannot be exercised prior to August 24, 1996 and
expires on August 24, 1999. Subsequent to August 24, 1998 and prior to August
24, 1999, BRAC will have the right to cause the Company to repurchase the
BRAC Stock Warrant for $2,000.
12. COMMITMENTS
FRANCHISE AGREEMENTS--The Company has various franchise agreements with
BRAC which require the payment of monthly royalty fees. These fees vary from
a flat fee of $13.25 per car per month to 7.5% of gross rental revenues, as
defined in the franchise agreements. The above franchise agreements are
generally renewable for an unlimited number of five-year periods, subject to
certain terms and conditions.
Concurrent with the initial public offering, the Company purchased for
$1,750 the direct franchise rights for Budget Rent a Truck facilities to
operate in certain geographic locations in San Diego County and Imperial
County, California. This reduced substantially all truck rental royalty fees
to 5% of gross rental revenues, as defined. Prior to the purchase of the
direct franchise rights, the Company paid royalty fees of 12% of gross rental
revenue.
The Company also participates in a "One-Way" truck rental program in San
Diego County and Imperial County, California sponsored by Budget whereby
trucks owned by Budget are stationed at the Company's facilities for one-way
rental by outside parties. The Company retains fees for Budget "One- Way"
truck rental revenue of 20%. Revenues from the "One-Way" truck rental program
for the years ended December 31, 1993, 1994 and 1995 were $301, $558 and
$1,027, respectively.
SUBLICENSE AGREEMENTS--The Company has sublicense agreements with Budget
of Southern California which entitles the Company to operate Budget Car
Rental facilities in Southern California. Sublicense fees to Budget of
Southern California range from 5% to 6.5% of gross revenues as defined in the
sublicense agreements.
The Company also has a sublicense agreement with Transportation Storage
Associates ("TSA") for the right to rent trucks in and around Los Angeles
County. Fees to TSA are 12% of gross revenues as defined in the sublicense
agreement.
Royalty and sublicense fees expensed by the Company for the years ended
December 31, 1993, 1994 and 1995 were $1,498, $2,348 and $5,715,
respectively. Budget reservation fees expensed by the Company for the years
ended December 31, 1993, 1994 and 1995 were $1,023, $1,574 and $3,904,
respectively.
13. FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosure About Fair Value of Financial Instruments. The estimated fair
value amounts are determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amount.
F-18
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
13. FINANCIAL INSTRUMENTS (Continued)
CASH AND CASH EQUIVALENTS, RECEIVABLES, ACCOUNTS PAYABLE AND NOTES
PAYABLE--The carrying amounts of these items are reasonable estimates of
their fair value.
BRAC STOCK WARRANT--The estimated fair value is based on a pricing model
which considers stock volatilities and the put feature of the BRAC Stock
Warrant. The estimated fair value was $2,000 and, $1,900 at December 31, 1994
and 1995, respectively.
14. NONRECURRING INCOME
In 1993, the Company ordered revenue earning vehicles from a vehicle
manufacturer pursuant to the manufacturer's repurchase program. Such vehicles
were not delivered by the manufacturer. The Company recognized as
nonrecurring income cash received of $1,023 for the non-delivery of the
vehicles.
15. SUPPLEMENTAL CASH FLOW DISCLOSURE
In 1995, the Company issued approximately $12,837 of Class A common stock
and notes payable of $650 for the 1995 acquisitions. Equipment financed
through capital leases in 1995 totaled approximately $827.
In 1994, $525 of revenue earning vehicles and property and equipment were
financed through capital leases. The terms of a capital lease with certain
stockholders and a director were modified and, therefore, the capital lease
asset and obligation of $536 were eliminated. The net book value of the
facility lease and capital lease obligation of $536 was deducted from
proceeds from the sale of property and equipment and principal payments of
capital lease obligations, respectively. The Company also issued $200 of
Class A common stock to acquire the Fort Wayne franchise. In addition,
property and equipment of $4,441 were acquired and notes payable of $4,016
were assumed in connection with the Freedom River acquisition.
In 1994, the Company recorded prepaid royalty fees and the BRAC Stock
Warrant of $2,000 for the abatement of certain fees and other consideration
received from BRAC (see Note 11).
In 1993, a $92 note was issued to the lessor of the Albany, New York
facility in satisfaction of an agreement to share leasehold improvement costs
and a corresponding asset was recorded. Facilities and equipment financed
through capital leases in 1993 totaled $916.
The Company paid interest of $2,756, $4,091 and $13,764 in 1993, 1994 and
1995, respectively.
Income taxes of $182 and $346 were paid in 1994 and 1995, respectively.
F-19
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
16. SEGMENT INFORMATION
The Company is engaged in the business of the daily rental of vehicles,
principally cars, trucks, and passenger vans, and the retail sale of used
cars. Segment information for the year ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
RETAIL CAR VEHICLE
SALES RENTAL ELIMINATIONS CONSOLIDATED
------------ ---------- -------------- --------------
<S> <C> <C> <C> <C>
Sales to Unaffiliated Customers ........ $42,662 $107,067 $149,729
Intersegment Sales ...................... 4,655 $(4,655)
Operating Revenue ....................... 42,662 111,722 (4,655) 149,729
Depreciation and Amortization ........... 193 29,483 29,676
Income Before Provision for Income Taxes 1,869 (847) 1,022
Identifiable Assets ..................... 30,195 356,127 386,322
</TABLE>
The Company operated in only the rental segment for the years ended
December 31, 1993 and 1994. No one customer represented more than 10% of the
Company's consolidated net sales for the years ended December 31, 1993, 1994
and 1995.
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
BRAC-OPCO, Inc.
Santa Ana, California
We have audited the accompanying balance sheets of BRAC-OPCO, Inc. (a
wholly owned corporation of Budget Rent A Car of Southern California) as of
December 31, 1993 and 1994, and the related statements of income,
stockholder's equity, and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BRAC-OPCO, Inc. as of
December 31, 1993 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Sherman Oaks, California
March 23, 1995
F-21
<PAGE>
BRAC-OPCO, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
---------------------
1993 1994
---------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash ....................................................... $ 1,442 $ 1,159
Receivables--
Trade accounts (net of allowance for doubtful accounts of
$207 in 1993; $234 in 1994) .............................. 2,870 3,295
Vehicle sales ............................................. 13,404 9,691
Other ..................................................... 919 1,120
Prepaid vehicle licenses ................................... 1,216 1,345
Other prepaid expenses and current assets .................. 879 1,161
Rental vehicles (net of accumulated depreciation of
$9,769 in 1993; $11,319 in 1994) .......................... 99,799 108,622
---------- ---------
TOTAL CURRENT ASSETS .................................... 120,529 126,393
Property and equipment, net of accumulated depreciation .... 2,040 1,761
OTHER ASSETS:
Franchise rights at cost (net of accumulated amortization
of
$1,114 in 1993; $1,449 in 1994) ........................... 12,307 11,971
Deposits and other assets .................................. 420 314
---------- ---------
TOTAL ASSETS ............................................ $135,296 $140,439
========== =========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
BRAC-OPCO, INC.
BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
DECEMBER 31,
----------------------
1993 1994
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Vehicle contracts payable ................... $114,852 $120,110
Notes payable
So Cal ..................................... 949 1,453
Robert Steven Investments .................. 133 33
Other ...................................... 58 46
Accounts payable and accrued expenses ...... 4,685 4,796
Obligations under capital leases ............ 267 25
Other current liabilities ................... 763 1,288
---------- ----------
TOTAL CURRENT LIABILITIES ................ 121,707 127,751
LONG-TERM LIABILITIES:
Notes payable
So Cal ..................................... 7,083 5,801
Spectrum ................................... 3,558 3,000
Other ...................................... 29
Obligations under capital leases ............ 171 46
---------- ----------
TOTAL LIABILITIES ........................ 132,548 136,598
Contingencies and commitments (Notes 7 and 8)
STOCKHOLDER'S EQUITY:
Common stock, no par value--
Authorized--100,000 shares .................
Issued and outstanding--3,300 shares ...... 2,783 2,783
Additional paid-in capital .................. 3,635 3,635
Deficit ..................................... (3,670) (2,577)
---------- ----------
2,748 3,841
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY ...................................... $135,296 $140,439
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
BRAC-OPCO, INC.
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Auto rentals ............................... $44,391 $56,956 $56,640
Truck rentals .............................. 4,196 6,886 7,715
Other ...................................... 425 594 700
--------- --------- ---------
TOTAL REVENUES .......................... 49,012 64,436 65,055
--------- --------- ---------
OPERATING EXPENSES:
Direct vehicle expenses--
Lease expenses ............................ 877 1,576 3,140
Depreciation .............................. 10,786 16,578 19,044
Interest on vehicle contracts ............. 7,731 8,352 8,315
Other ..................................... 7,602 10,205 9,474
Auto lease income ......................... (1,858) (2,740) (4,654)
--------- --------- ---------
TOTAL DIRECT VEHICLE EXPENSES ........... 25,138 33,971 35,319
Salaries and related overhead .............. 11,241 14,842 14,168
Occupancy .................................. 5,421 6,785 6,652
Selling, advertising and promotion ........ 3,602 4,745 4,764
General and administrative ................. 1,528 1,688 1,652
Bad debts .................................. 78 145 145
Amortization of franchise rights ........... 255 336 336
Other interest ............................. 304 464 345
--------- --------- ---------
TOTAL OPERATING EXPENSES ................ 47,567 62,976 63,381
--------- --------- ---------
INCOME FROM OPERATIONS ...................... 1,445 1,460 1,674
Other income (expenses):
Investment income .......................... 24 23 25
Interest expense--So Cal ................... (863) (629) (606)
--------- --------- ---------
Income before provision for income
taxes,
and before extraordinary item .......... 606 854 1,093
Provision for income taxes .................. 264
--------- --------- ---------
Income before extraordinary item ....... 342 854 1,093
Extraordinary item--tax benefit resulting
from utilization of operating loss
carryforward ............................... 264
--------- --------- ---------
NET INCOME .............................. $ 606 $ 854 $ 1,093
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
BRAC-OPCO, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN
SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 ..................... 1,200 $1,677 $3,435 $(5,130) $ (18)
Capital contributions from So Cal .............. 131 131
Issuance of stock to So Cal in consideration of
assignment of receivables ..................... 2,100 1,106 69 1,175
Net income ..................................... 606 606
-------- -------- ------------ ---------- --------
BALANCE AT DECEMBER 31, 1992 ................... 3,300 2,783 3,635 (4,524) 1,894
Net income ..................................... 854 854
-------- -------- ------------ ---------- --------
BALANCE AT DECEMBER 31, 1993 ................... 3,300 2,783 3,635 (3,670) 2,748
Net income ..................................... 1,093 1,093
-------- -------- ------------ ---------- --------
BALANCE AT DECEMBER 31, 1994 ................... 3,300 $2,783 $3,635 $(2,577) $3,841
======== ======== ============ ========== ========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
BRAC-OPCO, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net income ..................................... $ 606 $ 854 $ 1,093
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization ................ 17,917 22,182 22,073
Bad debts .................................... 78 145 145
(Gain) loss on disposition of assets ......... 171 (530) (796)
(Increase) in trade receivables .............. (349) (28) (570)
(Increase) decrease in vehicle
rebates receivable ......................... (150) 320
(Increase) decrease in other receivables ..... (311) (62) (197)
(Increase) in prepaid vehicle licenses ....... (132) (129)
(Increase) in prepaid expenses and other
current assets ............................. (610) 19 (272)
(Increase) decrease in deposits .............. (168) 87 (46)
Increase (decrease) in accounts payable and
accrued expenses ........................... 994 461 107
(Decrease) in deferred vehicle rebate income . (826) (445) (51)
Increase (decrease) in other current
liabilities ................................ 340 (1) 549
----------- ----------- -----------
Net cash provided by operating activities .. 17,692 22,870 21,906
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of rental vehicles .......... 139,525 159,096 140,822
Repayments of vehicle contracts payable ........ (156,770) (179,380) (161,373)
Payments for purchase of property and equipment (589) (480) (412)
Proceeds from note receivable .................. 100 148
Acquisition of franchise rights ................ (263)
Proceeds from sale of property and equipment ... 71
----------- ----------- -----------
Net cash used in investing activities ....... (18,026) (20,664) (20,815)
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
BRAC-OPCO, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan from So Cal ................................ 314 729
Increase (decrease) in interest payable So Cal .. 225 $ (905) (243)
Loan from Robert Steven Investments ............. 400
Repayments of principal to--
So Cal ......................................... (130) (256) (793)
Robert Steven Investments ...................... (50) (200) (117)
Others ......................................... (561) (271) (582)
Payment of obligations under capital leases ..... (197) (255) (368)
Capital contributions from So Cal ............... 131
---------- ---------- ----------
Net cash used in financing activities ........ (132) (1,887) (1,374)
---------- ---------- ----------
Net increase (decrease) in cash ................... (202) 319 (283)
Cash, beginning of year ........................... 1,325 1,123 1,442
---------- ---------- ----------
Cash, end of year ................................. $ 1,123 $ 1,442 $ 1,159
========== ========== ==========
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Cash paid for interest ........................... $ 8,673 $ 10,351 $ 9,509
SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of rental vehicles by incurring debt $192,185 $182,104 $166,165
Acquisition of franchise rights by incurring debt 3,750
Acquisition of other assets by incurring debt ... 396
Acquisition of franchise rights by reducing note
receivable .................................... 740
Acquisition of property and equipment by reducing
note receivable ............................... 10
Issuance of stock to So Cal in consideration of
assignment of receivables ..................... 1,175
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
BRAC-OPCO, Inc. (Opco or the Company), a wholly owned subsidiary
corporation of Budget Rent A Car of Southern California (So Cal), a
California general partnership, was formed on May 23, 1989 to acquire and
operate vehicle rental businesses in the name and style of "Budget Rent A
Car" as a franchisee of So Cal, and "Budget Rent A Truck" as a franchisee of
Transportation and Storage Associates, Inc., an unrelated franchisor.
So Cal holds the prime franchise rights to operate or sub-franchise auto
rental operations in Southern California and certain Nevada territories in
the name and style of "Budget Rent A Car". So Cal is owned 75% by The Mirkin
Partnership and Mirkin & Family, Inc., and 25% by Rubin Bird and R. & G.
Bird, Inc.
NOTE 2 ACQUISITIONS
The Company has acquired various assets and assumed certain liabilities of
several of So Cal's franchisees. Each acquisition was accounted for by the
purchase method of accounting. The results of operations of the acquired
franchises are included in the Company's statements of income for the periods
in which they were owned by the Company.
Effective August 11, 1992, the Company acquired certain assets, including
franchise rights, and assumed certain liabilities of Spectrum Investment
Corporation ("Spectrum") for $5,162,000. Spectrum previously operated several
franchises in territories covering the San Fernando Valley (including Burbank
Airport) and Orange County (other than Orange County Airport) under a
franchise agreement with So Cal. The purchase price consisted of $115,000 in
cash, $1,297,000 in assumed vehicle contracts payable, and a $3,750,000 note
(see Note 6B).
Effective January 6, 1993, the Company acquired certain assets, including
franchise rights, of an existing franchisee of So Cal in territories covering
Ventura and Santa Barbara counties for approximately $750,000. The purchase
price was paid through the reduction of $750,000 of an existing note
receivable which was due from the franchisee.
In each of the acquisitions, the full purchase price was allocated to
tangible assets and franchise rights which are being amortized using the
straight line method over 40 years.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. REVENUE RECOGNITION
Revenue from vehicle rental operations is recognized as earned under the
terms of rental contracts and excludes sales tax. Revenue on open contracts
is accrued to the balance sheet date based on the contract rental rates.
B. DEPRECIATION
Rental vehicles are stated at cost and are classified on the balance
sheets as a current asset because, in the ordinary course of business, they
are expected to be held for less than one year. Most vehicles are purchased
pursuant to guaranteed buy-back agreements with manufacturers, and are
depreciated by reference to such buy-back provisions at rates ranging from
.8% to 2.25% per month in 1992, .85% to 2.5% per month in 1993, and .875% to
2.25% per month in 1994 with the rate most prevalent being approximately
1.5%, 1.6% and 1.8%, in 1992, 1993 and 1994, respectively. Other rental
vehicles are depreciated at 2.5% in 1992, and rates ranging from 2.5% to 3%
in 1993 and 1994.
Vehicle rebates from manufacturers are recorded as deferred income on the
balance sheet and are amortized as a reduction of depreciation expense over
the anticipated holding period of the vehicles which range principally from 6
to 9 months. Depreciation expense is further adjusted by gains or losses on
sales of rental vehicles.
F-28
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Depreciation under "direct vehicle expenses" on the statements of income
is summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Depreciation on rental vehicles ... $15,512 $19,142 $19,891
Amortization of rebates ............ (4,877) (2,034) (51)
Net loss (gain) on sale of vehicles 151 (530) (796)
--------- --------- ---------
$10,786 $16,578 $19,044
========= ========= =========
</TABLE>
The cost of other property and equipment is depreciated using
straight-line and accelerated methods over estimated useful lives ranging
from three to 32 years.
C. FRANCHISE RIGHTS
The Company assesses whether there has been a permanent impairment in the
value of franchise rights by considering factors such as expected future
operating income and trends, as well as the effects of demand, competition
and other economic factors. Management believes no permanent impairment has
occurred.
D. VEHICLE LICENSES
Vehicle license costs are capitalized and are amortized over the expected
holding period of the vehicles. The amortization expense is included in
"direct vehicle expenses - other" on the statements of income.
E. INCOME TAXES
Certain items of income and expense are recognized in different periods
for income tax and financial reporting purposes. Deferred taxes are provided
on such temporary differences. The principal temporary differences relate to
depreciation on rental vehicles, vehicle accident claims expenses, bad debts,
and amortization of franchise rights.
F. CASH AND CASH EQUIVALENTS
Cash equivalents are all highly liquid investments with a maturity of
three months or less from the date of acquisition.
The Company maintains its cash in bank accounts which, at times, exceeds
federally insured limits. The Company has not experienced any losses in such
accounts.
G. AUTO LEASE INCOME
Opco acts as a conduit in the acquisition of rental vehicles and the
leasing of said vehicles to other franchisees of So Cal, to assist such
franchisees in the acquisition of fleet. The lease income is reported as a
reduction of the related direct vehicle expenses and the net results of this
activity is not material to the statements of income.
H. ADVERTISING AND PROMOTION
Advertising and promotion expenses are reported net of reimbursements from
General Motors Corporation under a co-op advertising agreement which expired
August 31, 1992 and was not renewed. For the year ended December 31, 1992,
the reimbursement totalled $334,000.
F-29
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment, other than rental vehicles, is summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1994
-------- --------
<S> <C> <C>
Building improvements ............................ $1,924 $2,157
Furniture, fixtures and equipment ................ 2,212 2,484
Vehicles ......................................... 52 46
-------- --------
Total property and equipment (including property
under capital leases of and $454 in 1993 and
$165 in 1994) ................................... 4,188 4,687
Less accumulated depreciation and amortization .. 2,148 2,926
-------- --------
$2,040 $1,761
======== ========
</TABLE>
NOTE 5--VEHICLE CONTRACTS PAYABLE
The Company purchases and leases its rental vehicles primarily from
manufacturers. Financing for the acquisition of the rental vehicles is
generally provided by affiliated finance companies of automobile
manufacturers. The lenders hold legal title to the vehicles as security for
the financing, and have a security interest in all revenue and receivables
resulting from vehicle rentals or sales
F-30
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--VEHICLE CONTRACTS PAYABLE (Continued)
The terms of the major vehicle financing contracts are summarized as
follows:
<TABLE>
<CAPTION>
BALANCE AS OF DECEMBER
31,
----------------------
1993 1994
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
GMAC--prime plus .75%, with monthly principal payments of
approximately $1,193,000 and $871,000, respectively. The maximum
allowable borrowings under this line are $100 million and $75
million in 1993 and 1994, respectively. .......................... $ 75,126 $ 59,823
Volvo Car Finance, Inc.--prime plus .75% for program vehicles, and
1% above prime for non-program vehicles, with monthly principal
payments of approximately $440,000 and $680,000, respectively.
The maximum allowable borrowings under this line are $60 million. 23,686 35,241
Ford Motor Credit Corp.--prime plus 1%, with monthly principal
payments of approximately $139,000 and $173,000, respectively.
The maximum allowable borrowings under this line are $26.5
million, including other franchisees' borrowings. There were no
other franchisees' borrowings outstanding at December 31, 1993
and 1994. ........................................................ 3,346 8,294
1st Source Bank--Trucker's Bank Plan - prime plus .75% to 1%, with
monthly principal payments of approximately $92,000 and $88,000,
respectively. The maximum allowable borrowings under this line
are $7 million. .................................................. 5,613 4,192
First Los Angeles Bank--prime plus 1%, with monthly principal
payments of approximately $29,000 and $193,000, respectively. The
maximum allowable borrowings under this line are $2 million and
$9 million in 1993 and 1994, respectively. ....................... 1,480 5,623
Associates Commercial Corporation--at rates of 8.5% to 8.75%, with
monthly principal payments of approximately $35,000 and $68,000,
respectively. .................................................... 1,820 2,701
So Cal--prime less .25%, with monthly principal payments of
approximately $16,000. ........................................... -- 466
Robert Steven Investments--greater of 12.5% or Union Bank's
reference rate plus 2.5%, with monthly principal payments of
approximately $39,000. (See Note 6A for description of
relationship.) ................................................... 307 --
Navistar Financial Corp.--at a rate of 7.75% with principal
payments of approximately $85,000 and $105,000, respectively. ... 3,474 3,770
---------- ----------
$114,852 $120,110
========== ==========
</TABLE>
Interest is paid monthly on all of the vehicle financing contracts.
Certain loan agreements contain provisions limiting the amount that can be
used to finance "risk vehicles" (other than manufacturer's buy-back program
eligible vehicles), and the GMAC agreement contains a provision which could
limit the amount of distributions to the partners of So Cal and provides,
under certain circumstances, for a prepayment premium of 3% of any principal
paid in advance.
Included above is approximately $13.4 and $9.7 million of debt related to
vehicles which had been sold as of December 31, 1993 and 1994, respectively.
This debt is repaid from the collections of the vehicle sales receivables,
which are included in current assets. Approximately $1.2 million and $957,000
of the
F-31
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--VEHICLE CONTRACTS PAYABLE (Continued)
outstanding debt as of December 31, 1993 and 1994 respectively, was for the
financing of vehicle licenses, which is related to prepaid vehicle licenses,
included in current assets, at December 31, 1993 and 1994.
The entire balance of the vehicle financing obligations is classified as a
current liability on the balance sheets because, in the ordinary course of
business, the obligations are expected to be repaid within one year. However,
contractually vehicle finance obligations are repayable at varying monthly
rates of up to 2.25% of the loan.
So Cal guarantees the majority of the above loans.
NOTE 6--NOTES PAYABLE
A. ROBERT STEVEN INVESTMENTS (RSI)
As of December 31, 1993 and 1994, Opco was indebted to RSI, a partnership
of Rubin Bird (a partner of So Cal) and his children, in the amount of
$150,000 and $33,333, respectively under a note bearing interest at the rate
of 12.5% or 2.5% over prime, whichever is greater. The December 31, 1994
balance is payable in monthly installments of $16,667 plus interest at a rate
of 9% per annum. This promissory note is guaranteed by So Cal and
collateralized by certain equipment.
B. SPECTRUM
In connection with the acquisition of assets from Spectrum and Cal Fleet,
Opco is indebted to Spectrum in the original amount of $3,750,000 evidenced
by a promissory note bearing interest, payable quarterly, at 8% per annum.
Principal is payable in five equal annual installments of $750,000 commencing
August 11, 1995; however, the Company has prepaid $704,000 of principal as of
December 31, 1994, which reduces the principal payment otherwise due August
11, 1995. This note is guaranteed by So Cal and collateralized by the
franchise right to the territories purchased. The balance as of December 31,
1993 and 1994 was $3,558,000 and $3,046,000, respectively.
C. SUMMARY OF DEBT MATURITIES
Notes payable are scheduled to mature as of December 31, 1994 as follows
(dollars in thousands):
<TABLE>
<CAPTION>
RSI SPECTRUM TOTAL
----- ---------- -------
<S> <C> <C> <C>
Current portion ........................ $33 $ 46 $ 79
----- ---------- -------
Long-term portion, maturing as follows:
1996 .................................. -- 750 750
1997 .................................. -- 750 750
1998 .................................. -- 750 750
1999 .................................. -- 750 750
2000 and after ........................ -- -- --
----- ---------- -------
-- 3,000 3,000
----- ---------- -------
Total .............................. $33 $3,046 $3,079
===== ========== =======
</TABLE>
For current and long-term portion of notes payable to So Cal (see Note
11).
NOTE 7--CONTINGENCIES
A. VEHICLE ACCIDENT CLAIMS
Under California law, Opco is permissively uninsured with respect to
bodily injury and property damage claims arising from accidents involving its
vehicles. Except as further provided below, the
F-32
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--CONTINGENCIES (Continued)
Company's liability generally will not exceed $35,000 per incident when the
accident is solely the responsibility of the renter or an unrelated third
party. The Company's special legal counsel, engaged specifically to deal with
these matters, advises that when such renter has insurance - which is the
case in approximately 85% of incidents - the Company has little, if any,
potential liability. However, in at least the following three circumstances
the Company could have unlimited liability mitigated by insurance coverage as
indicated:
1) Product liability - e.g., if a rented vehicle had not been properly
maintained.
2) Employee negligence - e.g., an accident caused by an employee of the
Company.
3) Negligent entrustment - e.g., renting a vehicle to a customer who, at
the time of the rental, is under the influence of alcohol or other controlled
substances.
With respect to either product liability or employee negligence, the
Company carries $1,000,000 of primary insurance coverage and an additional
$2,000,000 of excess liability coverage.
Based on the advice of special legal counsel, as well as the Company's
recent experience, management has established what it believes to be an
adequate provision for estimated losses on known and unreported claims at
December 31, 1993 and 1994 totaling $875,000 and $850,000, respectively,
which are included in "accounts payable and accrued expenses" on the balance
sheets.
B. LEGAL ACTIONS
The Company is party to a number of legal actions arising in the ordinary
course of its business. In management's opinion, based on advice of outside
legal counsel, the Company has adequate legal defenses and/or insurance
coverage respecting each of these actions and they will not have a material
adverse effect on the Company's operations or financial condition.
C. GROUP MEDICAL PLAN
The Company maintains a group medical insurance plan which, if terminated,
would have resulted in a liability as of December 31, 1994 in the amount of
approximately $266,000 in the form of a supplemental premium.
NOTE 8--LEASE COMMITMENTS
Opco leases numerous branch offices and other facilities under operating
leases, and various equipment and building improvements under capital leases.
The operating leases expire from 1995 to 2004, without regard to renewal
options extending beyond such dates. Various leases require payments in
excess of minimum base rent for property taxes, insurance, maintenance, and
cost of living escalations; or for overages based on percentage of sales.
Total rent expense for the years ended December 31, 1992, 1993, and 1994 was
approximately $3,900,000, $4,900,000, and $4,900,000, respectively.
So Cal operates certain of its properties under noncancelable operating
leases that, in addition to fixed rental payments, contain escalation clauses
that require the tenants to pay for real estate taxes and operating costs.
F-33
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LEASE COMMITMENTS (Continued)
Future minimum annual payments under capital and operating leases as of
December 31, 1994 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- ------------------------------------------------------ --------- -----------
<S> <C> <C>
1995 .................................................. $33 $3,274
1996 .................................................. 32 1,717
1997 .................................................. 19 1,149
1998 .................................................. -- 435
1999 .................................................. -- 317
Subsequent years ...................................... -- 1,159
--------- -----------
Total minimum lease payments ........................ 84 $8,051
===========
Less amount representing interest (rate equals 12.66%) 13
---------
Total obligations under capital leases .............. 71
Less current portion ................................ 25
---------
Long-term obligations under capital leases ......... $46
=========
</TABLE>
Opco leases five if its branch office and facilities from So Cal under
operating leases which expire from 1995 to 2004, without regard to renewal
options extending beyond such dates. Opco paid $243,000, $195,000 and
$185,000 in rent to So Cal for the years ended December 31, 1992, 1993 and
1994, respectively.
NOTE 9--RETIREMENT PLAN
Opco maintains a noncontributory qualified deferred compensation ("401K")
plan which enables eligible employees to set aside a portion of their
salaries as a contribution to the plan.
NOTE 10--INCOME TAXES
No net provision for federal or state income taxes has been made due to
the utilization of net operating loss carryforwards.
As of December 31, 1994, for income tax purposes, Opco's federal and state
net operating loss carryforwards were approximately $19.4 million and $3.5
million, respectively, which will expire during the years 1995 - 2009. U.S.
tax rules impose limitations on the use of net operating losses following
certain changes in ownership (see Note 13).
Effective January 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standard No. 109, "Accounting of Income
Taxes" (SFAS 109). As permitted under the new rules, the prior period's
financial statements have not been restated.
Under SFAS 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse. Prior to the
adoption of SFAS 109, income tax expense was determined using the deferred
method. Deferred tax expense was based on items of income and expense that
were reported in different years in the financial statements and tax returns
and were measured at the tax rate in effect in the year the difference
originated.
F-34
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES (Continued)
There was no cumulative or current effect of initial adoption of SFAS
109, on the net income or income tax expense for the year ended December 31,
1993.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
The Company's deferred tax assets and liabilities at December 31, 1993 and
1994 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Vehicle related accruals ......... $ 771 $ 579
Other items ...................... 566 557
Net operating loss carryforwards 8,118 7,177
Valuation allowance .............. (3,539) (3,508)
--------- ---------
5,916 4,805
Deferred tax liabilities:
Depreciation of fleet ............ (4,759) (3,298)
Amortization of franchise rights (1,157) (1,507)
--------- ---------
Net ........................... $ 0 $ 0
========= =========
</TABLE>
A full valuation allowance has been established as the potential deferred
tax asset above may not be realized.
A reconciliation between the Company's effective tax rate and the federal
income tax rate is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Federal income tax rate ............................ 34.0% 35.0% 35.0%
State taxes, net of federal effect ................. 6.3 6.6 6.0
Notes receivable and other assets with no tax basis -- 4.8 8.9
Net operating loss carryforwards ................... (41.0) (47.8) (52.7)
Other, net ......................................... .7 1.4 2.8
-------- -------- --------
Total .............................................. 0% 0% 0%
======== ======== ========
</TABLE>
NOTE 11--OTHER RELATED PARTY TRANSACTIONS
As of December 31, 1993 and 1994, Opco's total indebtedness to So Cal was
$8,032,000 and $7,254,000, respectively. The outstanding balance is comprised
of various loans in connection with the financing of one of Opco's initial
acquisitions as well as Opco's working capital needs.
F-35
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--OTHER RELATED PARTY TRANSACTIONS (Continued)
The notes and loans payable to So Cal are summarized as follows (dollars
in thousands):
<TABLE>
<CAPTION>
MONTHLY
1993 1994
PAYMENT
(INCLUDING ----------------------
-----------------------------------------------------------------------------------------------------------------
INTEREST PRINCIPAL AND CURRENT LONG-TERM CURRENT LONG-TERM
RATE TERM INTEREST) PORTION PORTION PORTION PORTION
- ---------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
8.0% Demand $130 $662 $6,993 $1,185 $5,755
11.5% Due 10/96 4 40 90 44 46
- -- -- -- 247 -- 224 --
--------- ----------- --------- -----------
$949 $7,083 $1,453 $5,801
========= =========== ========= ===========
</TABLE>
Both interest and principal on the 8% promissory notes are payable on
demand, or if no demand is made, then the entire balance of unpaid principal
and interest is due upon either the sale of more than 49% of the stock of
Opco, or substantially all of its assets. No demand has been made and,
accordingly, management has classified this liability between current and
long-term based on the principal that was anticipated, to be paid within one
year (See Note 13). Interest expense to So Cal for the years ended December
31, 1992, 1993, and 1994, was approximately $863,000, $629,000, and $606,000,
respectively.
So Cal has waived its rights to receive franchise fees from Opco until all
of the above debt has been repaid.
In addition, Opco was contingently liable to So Cal, which in turn was
contingently liable with respect to certain bank letters of credit issued in
the approximate amount of $672,000 as of December 31, 1994 relating to Opco's
operations.
Opco has not been charged for any of So Cal's salaries or other
administrative expenses.
NOTE 12--SUBSEQUENT EVENT
BRAC SOCAL Funding Corporation (Funding Corp.) was formed in December 1994
as a wholly-owned subsidiary of Opco for the purpose of purchasing vehicles
and leasing them to Opco and certain other franchisees of So Cal. In March
1995, Funding Corp. issued $40 million of floating rate rental car asset
backed notes under a private placement memorandum. In conjunction with this
financing, Opco also borrowed $4.5 million from First Los Angeles Bank which
was used in part, together with the $40 million, to pay down approximately
$42.9 million of the GMAC outstanding vehicle debt (see Note 5).
Concurrent with the GMAC Corporation prepayment described above, the
Company entered into an agreement with GMAC to modify the prepayment clause
of the vehicle financing agreement. Under the original agreement the Company
would have been subject to a premium of approximately $1.3 millon resulting
from the prepayment (see Note 5).
Under the new agreement, this premium is allocated over the next six
years, approximately $215,000 each year. However, the annual premium is
waived entirely if the Company maintains an average debt balance of $25
million during that year. If the average debt balance during any given year
falls between $20 million and $25 million, a prorated amount of the premium
is due GMAC for that year. The full annual premium is due for any year during
which the average debt balance falls below $20 million.
NOTE 13--TEAM ACQUISITION (UNAUDITED)
On April 10, 1995, an agreement in principle between So Cal and Team
Rental Group, Inc. (Team) was announced regarding the acquisition by Team or
its affiliate of all of Opco's outstanding stock for shares of Team stock to
be issued.
F-36
<PAGE>
BRAC-OPCO, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS (UNAUDITED)
<S> <C>
Cash and cash equivalents ...................... $ 421
Restricted cash ................................ 21,769
Trade receivables, net ......................... 3,063
Vehicle receivables, net ....................... 1,011
Notes receivable ............................... 81
Revenue earning vehicles, net .................. 95,390
Property and equipment, net .................... 1,175
Franchise rights, net .......................... 11,719
Other assets ................................... 3,549
-----------
Total assets .................................. $138,178
===========
LIABILITIES AND STOCKHOLDER'S
EQUITY (DEFICIT)
LIABILITIES:
Vehicle obligations--banks, finance companies . $ 79,073
Vehicle obligations--fleet financing facilities 40,000
Accounts payable ............................... 1,766
Accrued and other liabilities .................. 2,873
Auto liability ................................. 1,858
Notes due to sellers of acquired businesses ... 9,500
-----------
Total liabilities ............................. 135,070
STOCKHOLDER'S EQUITY:
Common stock ................................... 2,783
Additional paid-in-capital ..................... 3,635
Accumulated deficit ............................ (3,310)
-----------
Total stockholders' equity (deficit) ......... 3,108
-----------
Total liabilities and stockholder's equity $138,178
===========
</TABLE>
37
<PAGE>
BRAC-OPCO, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
(UNAUDITED)
1995 1994
---------- ---------
<S> <C> <C>
Operating Revenues .............................. $49,121 $52,698
Operating Expenses:
Direct vehicle and operating ................... 4,949 7,479
Depreciation/Lease--vehicles ................... 18,123 16,019
Depreciation--nonvehicle ....................... 545 310
Advertising, promotion and selling ............. 3,988 3,573
Facilities ..................................... 4,885 5,133
Personnel ...................................... 10,209 10,715
General and administrative ..................... 1,539 1,383
Amortization ................................... 251 252
---------- ---------
Total operating expenses ...................... 44,489 44,864
---------- ---------
Operating income (loss) ......................... 4,632 7,834
Other (income) expense:
Vehicle interest .............................. 7,589 6,058
Other interest ................................ 640 731
Interest income ............................... (27) (18)
---------- ---------
Total other expenses ......................... 8,202 6,771
Income (loss) before provision for income taxes (3,570) 1,063
Provision (benefit) for income taxes ............ 1,427 425
---------- ---------
Net income (loss) ............................... $(2,143) $ 638
========== =========
</TABLE>
F-38
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Arizona Rent-A-Car Systems, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Arizona
Rent-A-Car Systems, Inc. and Subsidiary as of February 28, 1994 and 1995, and
February 29, 1996, and the related consolidated statements of income (loss)
and retained earnings, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Arizona
Rent-A-Car Systems, Inc. and Subsidiary as of February 28, 1994 and 1995, and
February 29, 1996, and the results of their operations and their cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of computing depreciation for rental vehicles in
1996.
Michael Silver & Company
Certified Public Accountants
Skokie, Illinois
May 3, 1996
F-39
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
ASSETS 1994 1995 1996
-------------- -------------- --------------
(IN 000'S)
<S> <C> <C> <C>
Cash ............................................... $ 947 $ 775 $ 571
Trade and vehicle receivables (net of allowance for
doubtful accounts of $60, $83 and $316,
respectively) ..................................... 5,437 5,340 3,066
Used vehicle inventory ............................. 1,756 1,392 --
Prepaid expenses ................................... 1,451 2,043 1,308
Other assets ....................................... 223 277 83
Goodwill, net of amortization ...................... 468 448 429
Cash surrender value of officer's life insurance .. -- 182 --
Refundable income taxes ............................ -- 998 --
Deferred income taxes .............................. -- -- 245
Other intangibles, net of amortization ............. 57 40 28
-------------- -------------- --------------
10,339 11,495 5,730
-------------- -------------- --------------
Rental vehicles .................................... 82,384 80,731 73,181
Less: accumulated depreciation ..................... 6,147 5,012 6,245
-------------- -------------- --------------
76,237 75,719 66,936
-------------- -------------- --------------
Net property and equipment ......................... 7,017 7,025 5,406
-------------- -------------- --------------
TOTAL ASSETS ..................................... $93,593 $94,239 $78,072
============== ============== ==============
</TABLE>
F-40
<PAGE>
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1995 1996
-------------- -------------- --------------
(IN 000'S)
<S> <C> <C> <C>
LIABILITIES
Cash overdraft ................................ $ -- $ 952 $ --
Notes payable -- rental vehicles .............. 76,816 76,695 68,007
Notes payable -- floor plan ................... 1,062 1,027 --
Notes payable -- other ........................ 1,682 1,488 --
Accounts payable and accrued expenses ........ 2,845 2,710 2,305
Vehicle self-insurance reserve ................ 1,373 1,331 2,298
Other liabilities ............................. 611 642 1,991
Income taxes payable .......................... 350 -- 50
Deferred income taxes ......................... 1,495 2,175 --
-------------- -------------- --------------
TOTAL LIABILITIES 86,234 87,020 74,651
-------------- -------------- --------------
STOCKHOLDERS' EQUITY
Common stock -- no par value; 2,000 shares
authorized; 667 shares issued and outstanding 67 67 67
Additional paid-in capital .................... 493 493 493
Retained earnings ............................. 6,799 6,659 2,861
-------------- -------------- --------------
TOTAL STOCKHOLDERS' EQUITY ................... 7,359 7,219 3,421
-------------- -------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $93,593 $94,239 $78,072
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-41
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
FOR THE YEARS ENDED,
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
(IN 000'S)
<S> <C> <C> <C>
Revenue ............................................ $49,934 $51,427 $47,337
Direct expenses .................................... 25,203 28,417 30,039
-------------- -------------- --------------
Gross profit ....................................... 24,731 23,010 17,298
Operating expenses ................................. 22,907 22,632 22,187
-------------- -------------- --------------
Income (loss) from continuing operations before
provision (benefit) for income taxes and
cumulative effect of a change in accounting
principle ......................................... 1,824 378 (4,889)
Provision (benefit) for income taxes ............... 1,037 97 (1,880)
-------------- -------------- --------------
Income (loss) from continuing operations before
cumulative effect of a change in accounting
principle ......................................... 787 281 (3,009)
Cumulative effect on prior years of changing to
different depreciation method (less applicable
income taxes of $215--see note 2) ................. -- -- (335)
-------------- -------------- --------------
Income (loss) from continuing operations .......... 787 281 (3,344)
Loss from discontinued operations (less applicable
income taxes of $272, $146 and $179, respectively) (202) (421) (284)
-------------- -------------- --------------
Net income (loss) .................................. 585 (140) (3,628)
Retained earnings--beginning of year ............... 6,214 6,799 6,659
Divident paid to stockholder ....................... -- -- (170)
-------------- -------------- --------------
Retained earnings--end of year ..................... $ 6,799 $ 6,659 $ 2,861
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-42
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED,
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
(IN 000'S)
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income (loss) .............................. $ 585 $ (140) $(3,628)
-------------- -------------- --------------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization ................. 16,998 14,102 15,492
(Gain) loss on sale of rental vehicles and
property and equipment ...................... (7,723) (2,570) 137
Deferred income taxes ......................... 80 680 (2,420)
Changes in operating assets and liabilities:
(Increase)/decrease in:
Trade and vehicle receivables ............... (645) 98 2,274
Used vehicle inventory ...................... (1,755) 363 1,392
Prepaid expenses ............................ (543) (592) 735
Other assets ................................ 6 (69) 14
Cash surrender value of officer's life
insurance ................................. -- (182) --
Refundable income taxes ..................... -- (998) 998
Increase/(decrease) in:
Cash overdraft .............................. (2,062) 952 (953)
Accounts payable, accrued expenses and
other liabilities ......................... 1,022 (145) 1,911
Income taxes payable ........................ 335 (350) 50
-------------- -------------- --------------
TOTAL ADJUSTMENTS .......................... 5,713 11,289 19,630
-------------- -------------- --------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES .................................... 6,298 11,149 16,002
-------------- -------------- --------------
</TABLE>
F-43
<PAGE>
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from investing activities:
Proceeds from sale of rental vehicles .......... 95,772 82,437 75,477
Purchases of rental vehicles .................... (83,614) (104,331) (58,352)
Purchases of property and equipment ............. (1,290) (676) (114)
-------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES ....................................... 10,868 (22,570) 17,011
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds from issuance of debt .................. 91,765 107,867 74,548
Payment of debt ................................. (109,162) (96,583) (106,738)
Net payments of notes payable -- floor plan .... 1,062 (35) (1,027)
-------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES ....................................... (16,335) 11,249 (33,217)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH ................... 831 (172) (204)
CASH--BEGINNING OF YEAR ........................... 116 947 775
-------------- -------------- --------------
CASH--END OF YEAR ................................. $ 947 $ 775 $ 571
============== ============== ==============
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest ........................................ $ 4,138 $ 5,140 $ 5,455
============== ============== ==============
Income taxes .................................... $ 350 $ 619 $ (902)
============== ============== ==============
</TABLE>
Non-cash investing and financing activities:
The Company acquired vehicles under capital lease agreements totaling
$22,658, $7,842 and $30,398 in the years ended 1994, 1995 and 1996,
respectively. The Company also disposed of vehicles, with a net book value of
approximately $19,400 and $7,000, under capital lease agreements during the
years ended 1995 and 1996, respectively.
The Company distributed a non-cash dividend to its former stockholder
totaling $170 during the year ended 1996. This dividend consisted of assets
in excess of liabilities owed to the former stockholder.
The accompanying notes are an integral part of these consolidated financial
statements.
F-44
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1994 AND 1995, AND FEBRUARY 29, 1996
(IN 000S)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--Arizona Rent-A-Car Systems, Inc. (the Company) is
engaged in the business of the daily rental of vehicles, including cars,
trucks and passenger vans. The Company operates as the exclusive licensee of
Budget Rent-A-Car Corporation (BRAC) for the state of Arizona. The Company is
obligated to pay certain monthly fees and meet certain other requirements
defined in the license agreement.
On February 27, 1996, Team Rental Group, Inc. (TEAM) purchased all of the
outstanding stock of the Company. TEAM owns and operates Budget vehicle
rental franchises granted by BRAC.
BASIS OF PRESENTATION--The consolidated financial statements include the
accounts of the Company and BRAC Car Sales, Inc., a wholly-owned subsidiary
of the Company. BRAC Car Sales, Inc. ceased operations in May 1995 and their
financial results have been reflected in the financial statements as
discontinued operations for 1994, 1995 and 1996. All significant
inter-company accounts and transactions have been eliminated.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires Company management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RENTAL VEHICLES--Rental vehicles are stated at cost less related discounts
and are depreciated over their estimated economic lives or at rates
corresponding to the manufacturers' repurchase program guidelines, where
applicable. Depreciation rates range from 1% to 3% per month. Management
periodically reviews depreciable lives and rates based on a variety of
factors including general economic conditions and estimated holding periods
of the vehicles. Gains and losses upon the sale of rental vehicles are
recorded as an adjustment to depreciation expense.
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost.
Depreciation is being provided on the straight-line and accelerated methods
over the following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Buildings 31 years
Equipment, furniture and fixtures 3 - 10 years
lesser of estimated useful lives or terms of
Capital leases and leasehold improvements related leases
</TABLE>
GOODWILL AND OTHER INTANGIBLES--Goodwill represents the excess of purchase
price over the fair value of identifiable net assets acquired and is being
amortized using the straight-line method over forty years. Other intangibles
represent acquisition costs of sub-franchisees allocated to franchise
agreements, customer lists and other items, and are being amortized on the
straight-line method over their estimated lives, ranging from five to ten
years.
VEHICLE SELF-INSURANCE RESERVE--At February 29, 1996, the Company has
automobile liability insurance coverage of up to $1,000 with a $300 retention
per occurrence with respect to personal injury and damage claims arising from
the use of its vehicles . The Company estimates and records reserves on all
reported claims. The Company provides reserves on claims incurred but not
reported based on actuarial estimates. The actuarially determined reserves
are necessarily based on estimates, and while management believes that the
amounts are adequate, the ultimate liability may be in excess of, or less
than, the amounts provided. Such estimates are reviewed and evaluated in
light of emerging claim experience and existing circumstances. Any changes in
estimates from this review process are reflected in operations currently.
F-45
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1994 AND 1995, AND FEBRUARY 29, 1996
(IN 000S)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ADVERTISING, PROMOTION AND SELLING--Advertising, promotion and selling
expenses are charged to expense as incurred. The Company incurred advertising
expense of $1,055, $521 and $335 in 1994, 1995 and 1996, respectively.
INCOME TAXES--Deferred income taxes are provided in amounts sufficient to
give effect to timing differences between financial and tax reporting,
principally related to depreciation of rental vehicles and property and
equipment, self-insurance reserves and income tax credit carryforwards.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1994
and 1995 consolidated statements to conform to the 1996 presentation.
NOTE 2--CHANGE IN DEPRECIATION METHOD OF RENTAL VEHICLES
Depreciation of rental vehicles has been computed using the number of days
method for the year ended February 29, 1996. Depreciation in prior years was
computed using the number of months method. The new method of depreciation
was adopted to more accurately reflect the holding cost of rental vehicles.
Pro-forma amounts have not been included due to immateriality.
NOTE 3--CHANGE IN ACCOUNTING ESTIMATE
During the year ended February 28, 1995, the Company revised the estimated
rate of depreciation of capital assets. If the Company would have continued
to use the prior depreciation rates the Company's net loss before income
taxes for the year ended February 28, 1995 would have been increased by
approximately $750. The effect for the year ended February 29, 1996 of the
revised estimated rate of depreciation of capital leases cannot be accurately
determined.
NOTE 4--OTHER PROPERTY AND EQUIPMENT
Other property and equipment consisted of the following as of:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Land ........................................... $1,303 $ 1,303 $1,303
Buildings ...................................... 3,327 1,679 1,680
Leasehold improvements ......................... 1,443 3,419 3,102
Furniture and fixtures ......................... 415 434 881
Signs .......................................... 174 202 174
Equipment ...................................... 2,413 2,683 2,112
Computer software .............................. 627 658 651
-------------- -------------- --------------
9,702 10,378 9,903
Less accumulated depreciation and amortization 2,685 3,353 4,497
-------------- -------------- --------------
OTHER PROPERTY AND EQUIPMENT--NET ............ $7,017 $ 7,025 $5,406
============== ============== ==============
</TABLE>
Effective March 1, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
that long-lived assets and certain identifiable assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amounts of these assets may not be recoverable. Upon adoption of
this standard, the Company reduced the useful lives for certain
F-46
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1994 AND 1995, AND FEBRUARY 29, 1996
(IN 000S)
NOTE 4--OTHER PROPERTY AND EQUIPMENT (Continued)
leasehold improvements due to changes in the business climate. This change
resulted in an increase in amortization expense of approximately $720 for the
year ended February 29, 1996. This is included in Operating Expenses in the
1996 Statement of Income and Retained Earnings. Depreciation and amortization
expense on property and equipment was $618, $641 and $1,428 for the years
ended 1994, 1995 and 1996, respectively.
NOTE 5--NOTES PAYABLE--RENTAL VEHICLES
The following is a summary of notes payable--rental vehicles as of:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Notes payable .................. $54,525 $68,830 $37,478
Capital lease obligation--TEAM -- -- 30,472
Capital lease obligation--Other 22,291 7,865 57
-------------- -------------- --------------
Total ........................ $76,816 $76,695 $68,007
============== ============== ==============
</TABLE>
Notes payable are short-term borrowings with various lenders. The note
agreements provide for principal payments ranging from 1 1/2 % to 3% of the
original note balance per month, but may be accelerated upon the occurrence
of certain events including the sale of vehicles. The notes bear interest on
formulas based on prime or the federal reserve 30-day direct commercial paper
rate. The rates ranged from 6.00% to 6.75%, 8.55% to 10.75% and 8.85% to
10.75% at the end of fiscal 1994, 1995 and 1996, respectively. The notes are
secured by rental vehicles and all inventories and receivables. The Company
is responsible for maintaining certain financial ratios under the terms of
their loan agreements, of which certain of these ratios have not been
satisfied at February 29, 1996. Waivers have been granted or the obligations
subsequently satisfied for those ratios not satisfied.
In December 1995, the Company entered into an arrangement to lease
vehicles from TEAM under a capital lease. Lease payments are calculated based
on TEAM's borrowing interest rate and depreciation equal to the
manufacturers' depreciation rates. The Company entered into another capital
lease agreement in December 1994 to acquire rental vehicles with no
additional vehicle leases allowed after February 28, 1995. The Company is
obligated to make monthly rental payments which are computed in a manner
similar to that used in determining the principal and interest payments due
under the Company's lending agreement with this lessor. The Company is
accounting for both of these lease arrangements as capital leases whereby
upon lease inception it records the cost of the related rental vehicles and
the entire lease obligation, including the residual guarantee.
The following is a summary of vehicles under these capital leases as of:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Vehicle cost ................... $22,064 $7,976 $30,435
Less: accumulated depreciation 533 214 672
-------------- -------------- --------------
Net .......................... $21,531 $7,762 $29,763
============== ============== ==============
</TABLE>
Interest expense on the vehicle notes payable and capital lease
obligations was $3,894, $5,082 and $5,361 for the years ended 1994, 1995 and
1996, respectively.
F-47
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1994 AND 1995, AND FEBRUARY 29, 1996
(IN 000S)
NOTE 5--NOTES PAYABLE--RENTAL VEHICLES (Continued)
Depreciation expense for rental vehicles was approximately $16,326,
$13,382 and $13,770 for the years ended 1994, 1995 and 1996, respectively,
including amortization for vehicles under capital leases.
NOTE 6--NOTES PAYABLE--OTHER
Notes payable--other consisted of the following as of:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Mortgages on real estate properties requiring monthly
principal payments of $29 plus interest at rates
ranging from 6.25% to 8.75% in 1994 and 9.25% to
11.75% in 1995. This debt was paid by TEAM in 1996
(See Note 11) ....................................... $1,497 $1,166 $--
Loan from former stockholder requiring interest
payments of prime plus .50%. This loan was repaid
concurrent with the sale of the Company to TEAM .... 100 322 --
Notes payable on insurance premiums, was secured by
unearned premiums and unpaid claims, and beared
interest at 6.61% as of February 28, 1994 ........... 85 -- --
-------------- -------------- --------------
TOTAL NOTES PAYABLE--OTHER ......................... $1,682 $1,488 $--
============== ============== ==============
</TABLE>
Interest expense on the above debt was $166, $146 and $136 for the years
ended 1994, 1995 and 1996, respectively; of which $13, $17 and $31 was
related to the loan from the stockholder for the years ended 1994, 1995 and
1996, respectively.
NOTE 7--INCOME TAXES
The components of the provision (benefit) for income taxes are as follows
for the years ended:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Current ................................ $685 $(730) $ 146
Deferred ............................... 80 681 (2,420)
-------------- -------------- --------------
PROVISION (BENEFIT) FOR INCOME TAXES $765 $ (49) $(2,274)
============== ============== ==============
</TABLE>
F-48
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1994 AND 1995, AND FEBRUARY 29, 1996
(IN 000S)
NOTE 7--INCOME TAXES (Continued)
The deferred tax asset (liability) consisted of the following as of:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net deferred tax liabilities resulting primarily from
tax and financial reporting differences in recording
depreciation on rental vehicles and property and
equipment ........................................... $(3,145) $(4,345) $(1,645)
Net deferred tax asset resulting primarily from
nondeductible self-insurance reserves, bad debt
allowances and deferred compensation ................ 700 695 1,210
Net deferred tax asset resulting from net operating
loss and credit carryforwards ....................... 950 1,475 680
-------------- -------------- --------------
NET DEFERRED TAX ASSET (LIABILITY) ................. $(1,495) $(2,175) $ 245
============== ============== ==============
</TABLE>
As of February 29, 1996, the Company had an alternative minimum tax credit
carryforward for income tax purposes of approximately $400, which has an
indefinite carryforward period, and general business tax credit carryovers of
approximately $225, which expire through 2001.
The income tax provisions for the years ended 1994, 1995 and 1996 do not
bear the customary relationship to the federal statutory rate due to state
taxes, permanent nondeductible expenses and adjustments to the estimates used
in computing the income tax provision for the previous year.
NOTE 8--FACILITY LEASE COMMITMENTS
The Company leases the land for its major airport facility from the city
of Phoenix under a noncancellable lease expiring in the year 2004. The base
annual rental is $161 with annual increases based on changes in the Consumer
Price Index.
The Company has a license to operate as an auto rental agency in the
Phoenix Sky Harbor International Airport which expires on October 31, 2000.
Rents due under this agreement are the greater of 10% of gross receipts, or
annual minimum rentals of $2,612. In addition, the Company is leasing parking
space and other related facilities for $325 per year.
The Company also leases facilities from former stockholders (see Note 11).
The Company leases additional rental locations on a month-to-month basis
which call for payment of fixed amounts and contingent percentage rentals.
Future minimum lease payments under all operating leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING FEBRUARY 28:
- -------------------------
<S> <C>
1997 ..................... $ 2,876
1998 ..................... 2,911
1999 ..................... 2,937
2000 ..................... 2,937
2001 ..................... 2,030
Thereafter ............... 565
--------
$14,256
========
</TABLE>
F-49
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1994 AND 1995, AND FEBRUARY 29, 1996
(IN 000S)
NOTE 8--FACILITY LEASE COMMITMENTS (Continued)
Total rent expense on all operating leases for rental locations was
$3,821, $3,910 and $3,819 for the years ended 1994, 1995 and 1996,
respectively.
NOTE 9--RETIREMENT PLANS
The Company has a defined contribution employee profit sharing plan. All
employees of the Company are eligible upon satisfying entrance requirements.
Contributions, not to exceed 15% of qualified compensation, are at the
discretion of management. The Company's contribution to the Plan was $100 for
the year ended 1994. The Company did not make contributions in 1995 and 1996.
The Company has also instituted a 401(k) retirement plan whereby all
eligible employees may make contributions to the Plan. The Plan also provides
for discretionary Company contributions. The Company made plan contributions
of $29, $29 and $18 during the years ended 1994, 1995 and 1996, respectively.
NOTE 10--COMMITMENTS AND CONTINGENCIES
As of February 29, 1996, cash deposits in certain banks exceeded the
Federal Deposit Insurance Corporation insured limits by approximately $535.
At February 28, 1995 and February 29, 1996, the Company has recorded
approximately $450 and $650, respectively, for the potential settlement costs
of various claims. It is reasonably possible that there may be a change in
this estimate in the near term.
NOTE 11--TRANSACTIONS WITH RELATED PARTIES
Under the terms of sale of the Company's stock to TEAM, the former
stockholders accepted promissory notes which are collateralized by the stock
of the Company.
The Company leases a facility from these former stockholders. This lease
expires in September 2000, and requires base monthly rentals of $6. The
Company is responsible for additional rents based on a percentage of monthly
revenues in excess of those defined in the leases, as well as real estate
taxes. Rent expense on this location was $217, $310 and $303 for the years
ended 1994, 1995 and 1996, respectively.
The Company also leased facilities associated with BRAC Car Sales, Inc.
from the former principal stockholder. This lease was canceled in 1995 (see
Note 12). Rent expense on these locations was $315, $279 and $136 for the
years ended 1994, 1995 and 1996, respectively.
Upon acquiring the Company, TEAM satisfied the outstanding real estate
notes. This payable to TEAM of $852 at February 29, 1996 is included in Other
Liabilities on the Balance Sheet.
NOTE 12--DISCONTINUED OPERATIONS
On May 1, 1995, BRAC Car Sales Inc. ceased operations. The Company had
leased facilities associated with this operation from the former principal
stockholder. These lease obligations were canceled by this stockholder in
1995. In addition, this stockholder purchased the leasehold improvements and
certain other assets of BRAC Car Sales, Inc. at their net book values. The
used vehicle inventories were sold and the related flooring notes were
satisfied with the lenders. All other assets and liabilities of BRAC Car
Sales, Inc. were assumed by the Company. Any losses incurred after the
disposal date are considered to be losses from operations of the discontinued
segment, and are included in the accompanying financial statements.
F-50
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary ......................... 3
Risk Factors ............................... 9
The Company ................................ 14
Use of Proceeds ............................ 15
Price Range of Common Stock ................ 15
Dividend Policy ............................ 15
Capitalization ............................. 16
Pro Forma Consolidated Financial
Statements ................................ 17
Selected Financial Data .................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 24
Business ................................... 30
Management ................................. 40
Certain Transactions ....................... 44
Principal and Selling Stockholders ........ 47
Description of Capital Stock ............... 48
Shares Eligible for Future Sale ............ 51
Underwriting ............................... 52
Notice to Canadian Residents ............... 53
Legal Matters .............................. 54
Experts .................................... 54
Additional Information ..................... 54
Index to Financial Statements .............. F-1
</TABLE>
1
<PAGE>
#############################################################################
GRAPHIC OMITTED
IGT: "team"
#############################################################################
Team Rental Group, Inc.
3,672,727 Shares
Class A Common Stock
PROSPECTUS
CS First Boston
The Chicago Corporation
McDonald & Company
Securities, Inc.
1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses in connection with the issuance
and distribution of the securities being registered, all of which will be
paid by the Company:
<TABLE>
<CAPTION>
<S> <C>
* Securities and Exchange Commission registration fee $ 21,119
* NASD filing fee and expenses ........................ 6,624
* Nasdaq Stock Market listing fee ..................... 17,500
Blue Sky qualification fees and expenses ............ 1,500
Transfer agents' fees ............................... 10,000
Printing and engraving expenses ..................... 200,000
Legal fees and expenses ............................. 165,000
Accounting fees and expenses ........................ 175,000
Miscellaneous ....................................... 3,257
---------
Total ............................................. $600,000
=========
</TABLE>
- ------------
* Actual.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") provides that a corporation has the power to indemnify any director
or officer, or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) against the
expenses, (including attorney's fees), judgments, fines or amounts paid in
settlement actually and reasonably incurred by them in connection with the
defense of any action by reason of being or having been directors or
officers, if such person shall have acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, provided
that such person had no reasonable cause to believe his conduct was unlawful,
except that, if such action shall be in the right of the corporation, no such
indemnification shall be provided as to any claim, issue or matter as to
which such person shall have been judged to have been liable to the
corporation unless and to the extent that the Court of Chancery of the State
of Delaware, or any court in which such suit or action was brought, shall
determine upon application that, in view of all of the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as such court shall deem proper.
As permitted by Section 102(b)(7) of the DGCL, the Amended and Restated
Certificate of Incorporation of the Company (filed herewith as Exhibit 3.1)
(the "Restated Certificate of Incorporation") provides that no director shall
be liable to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director other than (i) for breaches of the director's
duty of loyalty to the Company and its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for the unlawful payment of dividends or
unlawful stock purchases or redemptions under Section 174 of the DGCL, and
(iv) for any transaction from which the director derived an improper personal
benefit.
The Company's Bylaws provide indemnification of the Company's directors
and officers, both past and present, to the fullest extent permitted by the
DGCL, and allow the Company to advance or reimburse litigation expenses upon
submission by the director or officer of an undertaking to repay such
advances or reimbursements if it is ultimately determined that
indemnification is not available to such director or officer pursuant to the
Bylaws. The Company's Bylaws also authorize the Company to
II-1
<PAGE>
purchase and maintain insurance on behalf of an officer or director, past or
present, against any liability asserted against him in any such capacity
whether or not the Company would have the power to indemnify him against such
liability under Section 145 of the DGCL.
The Company has entered into indemnification agreements with certain of
its directors and executive officers. The indemnification agreements require
the Company, among other things, to indemnify such directors and officers
against certain liabilities that may arise by reason of their status or
service as directors or officers (other than liabilities arising from willful
misconduct of a culpable nature), and to advance their expenses incurred as a
result of any preceding against them as to which they could be indemnified.
The Underwriting Agreement filed herewith as Exhibit 1.1 provides for the
indemnification by the Underwriters of directors and certain officers of the
Company against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On April 21, 1994, Messrs. Miller, Kennedy and Congdon each subscribed for
50 shares of the Class B Common Stock, at a price per share of $2.00 per
share (the "Initial Share Subscription"). The Initial Share Subscription was
effected pursuant to an exemption from registration under Section 4(2) of the
Securities Act in reliance, in part, on each of the subscribers'
representations and warranties set forth in their respective subscription
agreements and based on their status as the Principal Executive Officers of
the Company.
Concurrent with the initial public offering by the Company, the Company
and Messrs. Miller, Congdon, Kennedy, Britton, Hinkle and Sapia (the
"Exchange Stockholders") entered into a Share Exchange Agreement (the
"Exchange Agreement") providing for the exchange of all of the shares of
common stock of the corporations that owned the Albany and Rochester, New
York, Richmond, Virginia and San Diego, California Budget franchise
operations for shares of Common Stock. Pursuant to the Exchange Agreement,
the Exchange Stockholders received the following shares of Common Stock:
<TABLE>
<CAPTION>
STOCKHOLDER SHARES
- -------------------- --------------------------------
<S> <C>
Sanford Miller ...... 905,750 Class B Common Stock
Jeffrey Congdon .... 515,350 Class B Common Stock
John Kennedy ........ 515,350 Class B Common Stock
Brian Britton ....... 215,000 Class A Common Stock
Richard Hinkle ...... 150,000 Class A Common Stock
Richard Sapia ....... 198,400 Class A Common Stock
</TABLE>
The Share Exchange was effected pursuant to the exemption from
registration under Section 4(2) of the Securities Act in reliance, in part,
on each of the Exchange Stockholders' representations and warranties set
forth in the Exchange Agreement and based on their status as executive
managers of the Company.
In November 1994, the Company issued an aggregate of 18,500 shares of
Class A Common Stock to the stockholders of Fort Wayne Rental Group, Inc.
("Fort Wayne") in exchange for all of the outstanding shares of capital stock
of Fort Wayne (the "Fort Wayne Acquisition"). The Class A Common Stock issued
in the Fort Wayne Acquisition were issued to the following persons: Sanford
Miller--7,400 shares, Richard Sapia--6,475 shares, and Andrew Klein--4,625
shares. Such shares of Class A Common Stock were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act in
reliance, in part, on the representations and warranties set forth in the
Fort Wayne Acquisition agreement.
In January 1995, the Company issued 13,483 shares of Class A Common Stock
to MacKay Car & Truck Rentals, Inc. in partial consideration for all of the
outstanding shares of capital stock of McKay Car & Truck Rentals, Inc. (the
"Charlotte Acquisition"). The shares of Class A Common Stock issued in the
Charlotte Acquisition were issued pursuant to an exemption registration under
Section 4(2) of the Securities Act in reliance, in part, upon the
representations and warranties set forth in the Charlotte Acquisition
agreement.
II-2
<PAGE>
In March 1995, the Company issued 157,333 shares of Class A Common Stock
to the shareholders of Rental Car Resources, Inc. ("Resources") in exchange
for all of the outstanding shares of Rental Car Resources, Inc. (the
"Hartford Acquisition"). The shares of Class A Common Stock issued in the
Hartford Acquisition were so issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act in reliance, in part,
on the representations and warranties set forth in the Hartford Acquisition
agreement.
In October 1995, the Company issued 1,050,000 shares of Class A Common
Stock to Budget Rent a Car of Southern California ("SoCal") in exchange for
all of the outstanding shares of BRAC-OPCO, Inc. (the "Los Angeles
Acquisition"). The shares of Class A Common Stock issued in the Los Angeles
Acquisition were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act in reliance, in part, on SoCal's
representations and warranties set forth in the Los Angeles Acquisition
agreement.
In February 1996, the Company issued 272,727 shares of Class A Common
Stock to Katzin Investments L.C. in partial consideration for all of the
outstanding shares of capital stock of Arizona Rent-A-Car Systems, Inc. (the
"Phoenix Acquisition"). The shares of Class A Common Stock issued in the
Phoenix Acquisition were issued pursuant to an exemption from registration
under Section 4(2) of the Securities Act in reliance, in part, upon the
representations and warranties set forth in the Phoenix Acquisition
agreement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
<S> <C> <C>
**1.1 Form of Underwriting Agreement.
Share Exchange Agreement dated April 25, 1994 among Team Rental Group, Inc., Sanford
Miller, Jeffrey Congdon, John Kennedy, Brian Britton, Richard Hinkle and Richard Sapia
(incorporated by reference to Exhibit 10.24 to the Company's Registration Statement on
2.1 Form S-1, File No. 33-78274, dated April 28, 1994).
First Amendment to Share Exchange Agreement dated June 13, 1994 among Team Rental Group,
Inc., Sanford Miller, Jeffrey Congdon, John Kennedy, Brian Britton, Richard Hinkle and
Richard Sapia (incorporated by reference to Exhibit 10.36 to Amendment No. 1 to the
2.2 Company's Registration Statement on Form S-1, File No. 33-78274, dated June 17, 1994).
Second Amendment to Share Exchange Agreement dated July 5, 1994 among Team Rental Group,
Inc., Sanford Miller, Jeffrey Congdon, John Kennedy, Brian Britton, Richard Hinkle and
Richard Sapia (incorporated by reference to Exhibit 10.38 to Amendment No. 2 to the
2.3 Company's Registration Statement on Form S-1, File No. 33-78274, dated July 7, 1994).
Asset Purchase Agreement, dated April 25, 1994, among Freedom River, Inc., Chrysler
Credit Corporation, Team Rental of Cincinnati, Inc., Team Rental of Philadelphia, Inc.
and Team Rental of Pittsburgh, Inc. (incorporated by reference to Exhibit 10.21 to the
2.4 Company's Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
Agreement, dated October 20, 1995, among Team Rental Group, Inc., Team Rental of Southern
California, Inc., BRAC-OPCO, Inc., and Budget Rent a Car of Southern California
(incorporated by reference to Exhibit 2.5 to the Company's Annual Report on Form 10-K for
2.5 the year ended December 31, 1995).
II-3
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
Stock Purchase Agreement, dated as of December 21, 1995, by and among the Company,
Arizona Rent-A-Car Systems, Inc., David Katzin, Michael Katzin, Jon David Katzin,
Gabrielle De Lavigne, the David Katzin Irrevocable Trust (dated November 17, 1989) and
Katzin Investments L.C. (incorporated by reference to Exhibit 2.1 to the Company's
2.6 Current Report on Form 8-K dated December 21, 1995).
Stock Purchase Agreement, dated as of November 1, 1994, by and between Team Rental of Ft.
Wayne, Inc., Sanford Miller, Richard Sapia and Andrew Klein (incorporated by reference to
Exhibit 10.38 to the Company's Annual Report on Form 10-K for the year ended December 31,
2.7 1994).
Agreement, dated as of December 20, 1994, among the Company, MacKay Car & Truck Rentals,
Inc. and Kenneth V. MacKay (incorporated by reference to Exhibit 10 to the Company's
2.8 Current Report on Form 8-K dated January 13, 1995).
Agreement, dated December 22, 1994, by and among Don Kremer Lincoln Mercury, Inc.,
Richard E. Hagopian, and Team Rental Group, Inc. (incorporated by reference to Exhibit
2.9 10.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
Agreement, dated as of March 8, 1995, among Team Rental of Connecticut, Inc., Team Rental
Group, Inc., Rental Car Resources Inc. and James Salatto and Joseph Salatto (incorporated
by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K for the year
2.10 ended December 31, 1995).
Amended and Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, File No.
3.1 33-78274, dated April 28, 1994).
By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's
3.2 Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's
4.1 Annual Report on Form 10-K for the year ended December 31, 1995).
Base Indenture between Team Fleet Financing Corporation, as Issuer, Team Rental Group,
Inc., as Servicer and Team Interestholder, and Bankers Trust Company, as Trustee,
relating to Rental Car Asset Backed Notes (incorporated by reference to Exhibit 4.1 to
4.2 the Company's Annual Report on Form 10-K for the year ended December 31, 1994).
Supplemental Indenture relating to Rental Car Asset Backed Notes (incorporated by
reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for the year ended
4.3 December 31, 1994).
Base Indenture among BRAC SOCAL Funding Corporation, as Issuer, BRAC-OPCO, Inc., as
Servicer and Retained Interestholder, and Bankers Trust Company, as Trustee (incorporated
by reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K for the year
4.4 ended December 31, 1995).
Series 1995-1 Supplement to Base Indenture among BRAC SOCAL Funding Corporation, as
Issuer, BRAC-OPCO, Inc., as Servicer and Retained Interestholder, and Bankers Trust
Company, as Trustee (incorporated by reference to Exhibit 4.6 to the Company's Annual
4.5 Report on Form 10-K for the year ended December 31, 1995).
II-4
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
Supplement No. 1 to Indenture, dated as of October 20, 1995, among BRAC SOCAL Funding
Corporation, BRAC-OPCO, Inc., Team Rental of Southern California, Inc., and Bankers Trust
Company (incorporated by reference to Exhibit 4.7 to the Company's Annual Report on Form
4.6 10-K for the year ended December 31, 1995).
Form of Base Indenture between Team Fleet Financing Corporation, as Issuer, Team Rental
Group, Inc., as Servicer and Team Interestholder, and Bankers Trust Company, as Trustee,
**4.7 relating to the Third Fleet Financing Facility.
Form of Series 1996-a Supplemental to Base Indenture among Team Fleet Financing
Corporation, as Issuer, Team Rental Group, Inc., as Servicer and Team Interestholder, and
**4.8 Bankers Trust Company, as Trustee, relating to the Third Fleet Financing Facility.
Master Motor Vehicle Lease and Servicing Agreement by and among Team Fleet Financing
Corporation, as Lessor, Team Rental Group, Inc., as Guarantor, and Tranex Rentals of New
York, Inc., Capital City Leasing, Inc., Lee-Al, Inc., Westeam Enterprises, Inc., Team
Rental of Philadelphia, Inc., Team Rental of Pittsburgh, Inc. and Team Rental of
Cincinnati, Inc., as Lessees (incorporated by reference to Exhibit 4.3 to the Company's
4.9 Annual Report on form 10-K for the year ended December 31, 1994).
Master Motor Vehicle Lease and Servicing Agreement, dated February 15, 1995 among BRAC
SOCAL Funding Corporation, as Lessor, BRAC OPCO, Inc. and certain other affiliates, as
**4.10 Lessees, relating to the Second Fleet Financing Facility.
Form of Master Motor Vehicle Lease and Servicing Agreement among Team Fleet Financing
Corporation, as Lessor, Team Rental Group, Inc., as Guarantor and certain of its
**4.11 affiliates, as Lessees, relating to the Third Fleet Financing Facility.
Registration Rights Agreement, dated as of August 25, 1994, among the Company, Brian
Britton, Jeffrey Congdon, Richard Hinkle, John Kennedy, Sanford Miller and Richard Sapia
(incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K
4.12 for the year ended December 31, 1994).
First Amendment to Registration Rights Agreement, dated as of November 1, 1994, among the
Company, Brian Britton, Jeffrey Congdon, Richard Hinkle, John Kennedy, Sanford Miller and
Richard Sapia (incorporated by reference to Exhibit 10.24 to the Company's Annual Report
4.13 on Form 10-K for the year ended December 31, 1994).
Letter Agreement, dated as of November 1, 1994, between Andrew Klein and the Company
acknowledging that Andrew Klein is a party to the Registration Rights Agreement, dated as
of August 25, 1994, as amended (incorporated by reference to Exhibit 10.25 to the
4.14 Company's Annual Report on Form 10-K for the year ended December 31, 1994).
Registration Rights Agreement, dated March 8, 1995, by and among Team Rental Group, Inc.
and James Salatto (incorporated by reference to Exhibit 4.12 to the Company's Annual
4.15 Report on Form 10-K for the year ended December 31, 1995).
Registration Rights Agreement, dated as of October 20, 1995, between Team Rental Group,
Inc. and Budget Rent a Car of Southern California (incorporated by reference to Exhibit
4.16 4.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
II-5
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
Registration Rights Agreement, dated as of February 27, 1996, between Team Rental Group,
Inc. and Katzin Investments L.C. (incorporated by reference to Exhibit 4.1 to the
4.17 Company's Current Report on Form 8-K dated February 27, 1996).
Warrant No. 1-1994, dated as of August 24, 1994, to purchase 175,000 shares of Class A
Common Stock, par value $.01 per share, of the Company, issued to Budget Rent a Car
Corporation (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on
4.18 Form 10-K for the year ended December 31, 1994).
**5.1 Opinion of King & Spalding.
Sublicense Agreement dated April 1, 1987 between Budget Rent A Car of Southern California
and Westeam Enterprises, Inc. (incorporated by reference to Exhibit 10.1 to the Company's
10.1 Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
Sublicense Agreement dated October 28, 198 between Budget Rent A Car of Southern
California and Lee-Al, Inc. (incorporated by reference to Exhibit 10.3 to the Company's
10.2 Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
Letter Agreement dated October 23, 1989 between Transportation and Storage Associates
d/b/a Budget Rent a Truck of Southern California and Budget Rent a Car of Southern
**10.3 California.
Prime License Agreement dated August 25, 1994 between Budget Rent A Car Corporation and
Team Rental of Pittsburgh, Inc. d/b/a Budget Rent A Car of Pittsburgh, Pennsylvania,
together with Addendum to License Agreement: Right of First Refusal, dated August 25,
1994 (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on form
10.4 10-K for the year ended December 31, 1994).
Prime License Agreement dated August 25, 1994 between Budget Rent A Car Corporation and
Team Rental of Cincinnati, Inc. d/b/a Budget Rent A Car of Cincinnati, Ohio (incorporated
by reference to Exhibit 10.6 to the Company's Annual Report on form 10-K for the year
10.5 ended December 31, 1994).
Prime License Agreement dated August 25, 1994 between Budget Rent A Car Corporation and
Team Rental of Philadelphia, Inc. d/b/a Budget Rent A Car of Philadelphia, Pennsylvania,
together with Addendum to License Agreement dated August 25, 1994 and Addendum to License
Agreement: Right of First Refusal, dated August 25, 1994 (incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31,
10.6 1994).
Prime License Agreement dated July 1, 1985 between Budget Rent a Car Corporation and
Capital City Leasing, Inc. d/b/a Budget Rent a Car of Richmond, Virginia, as amended by
the Letter dated April 26, 1994 from Budget Rent a Car Corporation to Team Rental Group
together with Consent Agreement Assignment of Prime License dated December 5, 1991 among
Budget Rent a Car Corporation, JHF Enterprises, Inc. and Capital City Leasing, Inc. d/b/a
Budget Rent a Car of Richmond, Virginia (incorporated by reference to Exhibit 10.9 to the
10.7 Company's Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
Prime License Agreement dated November 8, 1991 between Budget Rent a Car Corporation and
Tranex Rentals of New York, Inc. d/b/a Budget Rent a Car of Rochester, New York
(incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on
10.8 Form S-1, File No. 33-78274, dated April 28, 1994).
II-6
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
Prime License Agreement dated August 1, 1991, between Budget Rent A Car Corporation and
Tranex Rentals of New York, Inc. d/b/a Budget Rent A Car of Albany, New York
(incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on
10.9 Form S-1, File No. 33-78274, dated April 28, 1994).
Budget Rent a Car System Prime License Agreement, dated August 25, 1994, between Budget
Rent a Car Corporation and Westeam Enterprises, Inc. d/b/a Budget Rent a Truck of San
Diego, California (incorporated by reference to Exhibit 10.8 to the Company's Annual
10.10 Report on Form 10-K for the year ended December 31, 1994).
Amended and Restated Sublicense Agreement, dated as of October 20, 1995, between Budget
Rent a Car of Southern California and Team Rental of Southern California, Inc., along
with Corporate Guaranty of Team Rental Group, dated as of October 20, 1995 (incorporated
by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year
10.11 ended December 31, 1995).
Car Rental Operating License dated October 1, 1982 between the City of Philadelphia,
Automotive Rentals, Inc. d/b/a Budget Rent A Car of Philadelphia and Budget Rent A Car
Corporation (incorporated by reference to Exhibit 10.11 to the Company's Registration
10.12 Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
Prime License Agreement dated February 1, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Connecticut, Inc. d/b/a Budget Rent a Car of Hampden,
Massachusetts (incorporated by reference to Exhibit 10.13 to the Company's Annual Report
10.13 on Form 10-K for the year ended December 31, 1995).
Prime License Agreement dated February 1, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Connecticut, Inc. d/b/a Budget Rent a Car of Hartford and
New Haven, Connecticut (incorporated by reference to Exhibit 10.14 to the Company's
10.14 Annual Report on Form 10-K for the year ended December 31, 1995).
Prime License Agreement dated December 22, 1994 by and between Budget Rent a Car
Corporation and Team Rental of Dayton, Inc. d/b/a Budget Rent a Car of Dayton and Budget
Car Sales (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on
10.15 Form 10-K for the year ended December 31, 1995).
Prime License Agreement dated December 22, 1994 by and between Budget Rent a Car
Corporation and Team Rental of Dayton, Inc. d/b/a Budget Rent a Car of Richmond, Indiana
(incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K
10.16 for the year ended December 31, 1995).
Prime License Agreement dated January 4, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Charlotte, Inc. d/b/a Budget Rent a Car of Hickory, North
Carolina (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on
10.17 Form 10-K for the year ended December 31, 1995).
Prime License Agreement dated January 4, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Charlotte, Inc. d/b/a Budget Rent a Car of Charlotte,
North Carolina (incorporated by reference to Exhibit 10.18 to the Company's Annual Report
10.18 on Form 10-K for the year ended December 31, 1995).
Prime License Agreement dated January 4, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Charlotte, Inc. d/b/a Budget Rent a Car of Asheville,
North Carolina (incorporated by reference to Exhibit 10.19 to the Company's Annual Report
10.19 on Form 10-K for the year ended December 31, 1995).
II-7
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
Prime License Agreement dated October 1, 1976 by and between Budget Rent a Car
Corporation of America and Don Kremer, Inc. d/b/a Budget Rent a Car of Dayton, as amended
by Amendment to License Agreement dated November 1, 1991 (incorporated by reference to
Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended December 31,
10.20 1995).
Prime License Agreement dated January 28, 1986 between Budget Rent a Car Corporation and
Tranex Rentals, Inc. d/b/a Budget Rent a Car of Ft. Wayne, Indiana, together with Consent
Agreement dated August 1, 1993 among Budget Rent a Car Corporation, Tranex Rentals, Inc.
**10.21 and Ft. Wayne Rental Group, Inc.
Agreement dated November 23, 1960 between Rent-A-Car Services Corporation and Frank
Katzin, Ernst Sielaff and Harry Verblen, as co-partners, d/b/a Budget Rent-A-Car of
Arizona, as amended by the Addendum dated November 23, 1960, the Agreement dated October
, 1961, the Release Agreement dated December 30, 1963, the Amendatory Agreement dated
November 1, 1966, the Amendment to Franchise Agreement dated March 18, 1968, the Addendum
to License Agreement dated April 4, 1969, the Amendatory Agreement dated August 31, 1979,
the Second Amendatory Agreement dated August 31, 1979 and the letter agreement dated
January 27, 1981, together with the Consent to and Agreement of Assignment dated December
, 1962 among Budget Rent-A-Car Corporation of America, Frank Katzin, Harry Verblen and
Ernst Sielaff, as co-partners d/b/a Budget Rent-A-Car of Arizona, and David Katzin and
Charles H. Juliusburg, and the Consent to and Agreement of Assignment dated April 3, 1968
among Budget Rent-A-Car Corporation of America, Frank Katzin, Ernst Sielaff, David Katzin
and Charles Juliusburg, as co-partners d/b/a budget Rent-A-Car of Arizona, Margaret F
**10.22 Katzin.
Lease Agreement dated September 1, 1993 between Tranex Partners and Tranex Rentals of New
York, Inc., as amended by First Agreement dated as of July 1, 1994 (incorporated by
reference to Exhibit 10.40 to the Company's Registration Statement on Form S-1, File No.
10.23 33-78274).
Airport Concession Agreement between City of Phoenix (Aviation Department) and Arizona
**10.24 Rent-a-Car Systems, Inc. dated November 1, 1990.
Lease Agreement dated September 1, 1993 between Miller and Hinkle, a Florida general
partnership, and Capital City Leasing, Inc., as amended by First Amendment dated as of
July 1, 1994 (Henrico County, Virginia) (incorporated by reference to Exhibit 10.41 to
Amendment No. 3 to the Company's Registration Statement on Form S-1, File No. 33-78274,
10.25 dated August 12, 1994).
Lease Agreement dated June 1, 1994 between Miller and Hinkle, a Florida general
**10.26 partnership, and Capital City Leasing, Inc. (Chesterfield County, Virginia).
Lease Agreement dated as of September 12,1995 between MCK Real Estate Corporation, Team
Car Sales of Richmond, Inc. and Team Rental Group, Inc. (incorporated by reference to
Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31,
10.27 1995).
Agreement of Lease dated as of August 31,1995 between MCK Real Estate Corporation and
Team Rental of Philadelphia, Inc. (incorporated by reference to Exhibit 10.25 to the
10.28 Company's Annual Report on Form 10-K for the year ended December 31, 1995).
Environmental Remediation Agreement between Chrysler Credit Corporation and Team Rental
Group, Inc. (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on
10.29 Form 10-K for the year ended December 31, 1994).
II-8
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
Agreement between Team Rental Group, Inc. and Transportation & Storage Associates dated
April 5, 1994 (incorporated by reference to Exhibit 10.5 to the Company's Registration
10.30 Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
Share Purchase Agreement dated January 11, 1996 between Chrysler Corporation and the
Company (incorporated by reference to Exhibit 2.2 to the Company's Form 10-Q for the
10.31 quarter ended March 31, 1996).
First Amended and Restated Credit Agreement, dated as of January 12, 1995, among Team
Fleet Services Corporation, the Company and NBD Bank, N.A. (incorporated by reference to
Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended December 31,
10.32 1994).
First Amendment to Credit Agreement dated May 23, 1995 (incorporated by reference to
Exhibit 10.38 to the Company's Annual Report on Form 10-K for the year ended December 31,
10.33 1995).
Second Amendment to Credit Agreement dated July 11, 1995 (incorporated by reference to
Exhibit 10.39 to the Company's Annual Report on Form 10-K for the year ended December 31,
10.34 1995).
Third Amendment to Credit Agreement dated December 29, 1995 (incorporated by reference to
Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended December 31,
10.35 1995).
Fourth Amendment to Credit Agreement dated February 27, 1996 (incorporated by reference
to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the year ended December
10.36 31, 1995).
Fifth Amendment to Credit Agreement dated March 28, 1996 (incorporated by reference to
10.37 Exhibit 10.3 to the Company's Form 10-Q for the quarter ended March 31, 1996)
**10.38 Sixth Amendment to Credit Agreement dated April 30, 1996.
Credit Agreement dated May 16, 1995 by and among TeamRental Group, Inc., Team Fleet
Services Corporation and BankOne Indianapolis, N.A. (incorporated by reference to Exhibit
10.39 10.42 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
First Amendment to BankOne Credit Agreement dated November 1, 1995 (incorporated by
reference to Exhibit 10.43 to the Company's Annual Report on Form 10-K for the year ended
10.40 December 31, 1995).
Second Amendment to BankOne Credit Agreement dated February 2, 1996 (incorporated by
reference to Exhibit 10.44 to the Company's Annual Report on Form 10-K for the year ended
10.41 December 31, 1995).
Form of World Omni, Inc. Term Note (incorporated by reference to Exhibit 10.45 to the
10.42 Company's Annual Report on Form 10-K for the year ended December 31, 1995).
Promissory Note, dated February 27, 1996, from Team Rental of Southern California, Inc.
to Budget Rent a Car of Southern California in the principal amount of approximately
$4,775,000 (incorporated by reference to Exhibit 10.46 to the Company's Annual Report on
10.43 Form 10-K for the year ended December 31, 1995).
II-9
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
Promissory Note, dated February 27, 1996, from the Company to Katzin Investments L.C. in
the aggregate principal amount of $10,000,000 (incorporated by reference to Exhibit 10.47
10.44 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
Term Note dated February 27, 1996 from NationsBank, N.A. (South) to the Company
(incorporated by reference to Exhibit 10.48 to the Company's Annual Report on Form 10-K
10.45 for the year ended December 31, 1995).
Amendment No. 1 to Team Note dated April 2, 1996 from NationsBank, N.A. (South) to the
Company (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended
10.46 March 31, 1996).
Revolving Credit Agreement by and between VPSI, Inc. and NationsBank, N.A. (South) dated
February 6, 1996 (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q
10.47 for the quarter ended March 31, 1996).
Amendment and Waiver No. 1 to Revolving Credit Agreement and Security Agreement by and
between VPSI, Inc. and NationsBank, N.A. (South) dated March 28, 1996 (incorporated by
reference to Exhibit 10.5 to the Company's Form 10-Q for the quarter ended March 31,
10.48 1996).
Subordination Agreement, dated as of October 20, 1995, among Budget Rent a Car of
Southern California, BRAC-OPCO, Inc., Team Rental Group, Inc. and Team Rental of Southern
California (incorporated by reference to Exhibit 10.49 to the Company's Annual Report on
10.49 Form 10-K for the year ended December 31, 1995).
Shareholders' Agreement, dated as of October 20, 1995, by and among Team Rental Group,
Inc., the holders of the Company's Class B Common Stock, and Budget Rent a Car of
Southern California (incorporated by reference to Exhibit 10.50 to the Company's Annual
10.50 Report on Form 10-K for the year ended December 31, 1995).
1994 Option Plan (incorporated by reference to Exhibit 10.27 to the Company's
10.51 Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
1994 Director's Plan (incorporated by reference to Exhibit 10.28 to the Company's
10.52 Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
Indemnification Agreement dated April 25, 1994 between the Company and Sanford Miller
(incorporated by reference to Exhibit 10.29 to the Company's Registration Statement on
10.53 Form S-1, File No. 33-78274, dated April 28, 1994).
Indemnification Agreement dated April 25, 1994 between the Company and John Kennedy
(incorporated by reference to Exhibit 10.30 to the Company's Registration Statement on
10.54 Form S-1, File No. 33-78274, dated April 28, 1994).
Indemnification Agreement dated April 25, 1994 between the Company and Jeffrey Congdon
(incorporated by reference to Exhibit 10.31 to the Company's Registration Statement on
10.55 Form S-1, File No. 33-78274, dated April 28, 1994).
Indemnification Agreement dated April 25, 1994 between the Company and Ronald Agronin
(incorporated by reference to Exhibit 10.32 to the Company's Registration Statement on
10.56 Form S-1, File No. 33-78274, dated April 28, 1994).
Indemnification Agreement dated April 25, 1994 between the Company and Stephen Weber
(incorporated by reference to Exhibit 10.33 to the Company's Registration Statement on
10.57 Form S-1, File No. 33-78274, dated April 28, 1994).
II-10
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
*11.1 Statement re computation of per share earnings.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Deloitte & Touche LLP
*23.2 Consent of Michael Silver & Company
*23.3 Consent of Coopers & Lybrand L.L.P.
**23.4 Consent of King & Spalding (included in Exhibit 5.1).
*27.1 Financial Data Schedule.
</TABLE>
- ------------
* Filed herewith.
** To be filed by amendment.
(b) Financial Statement Schedules of Team Rental Group, Inc. and
subsidiaries:
Independent Auditors' Report.
Schedule I--Condensed Financial Statements of the Company.
Schedule II--Schedule of Valuation and Qualifying Accounts.
II-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Team Rental Group, Inc.:
We have audited the consolidated financial statements of Team Rental
Group, Inc. as of December 31, 1995 and 1994, and for each of the three years
in the period ended December 31, 1995, and have issued our report thereon
dated April 12, 1996 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedules listed in Item 16 of
this Registration Statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
April 12, 1996
II-12
<PAGE>
SCHEDULE I
TEAM RENTAL GROUP, INC.
CONDENSED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA )
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................................ $ 635 $ 2,138
Investment in subsidiaries ........................................... 31,152 47,730
Other assets ......................................................... 1,500 2,701
--------- ---------
TOTAL ASSETS ....................................................... $33,287 $52,569
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Notes payable ....................................................... $ 2,610 $ 9,455
Accounts payable and accrued liabilities ............................ 1,929 1,522
--------- ---------
Total liabilities .................................................. 4,539 10,977
--------- ---------
COMMON STOCK WARRANT ................................................. 2,000 2,000
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 250,000 shares authorized, no
shares issued
Class A common stock, $.01 par value, one vote per share, 17,500,000
shares authorized, 4,036,300 and 5,257,116 shares issued .......... 40 52
Class B common stock, $.01 par value, ten votes per share, 2,500,000
shares authorized, 1,936,600 shares issued and outstanding ........ 20 20
Additional paid-in capital .......................................... 29,159 41,984
Accumulated deficit ................................................. (2,471) (2,134)
Treasury stock at cost (36,667 shares of Class A common stock) ..... (330)
--------- ---------
Total stockholders' equity ......................................... 26,748 39,592
--------- ---------
Total .............................................................. $33,287 $52,569
========= =========
</TABLE>
See notes to financial statements.
II-13
<PAGE>
SCHEDULE I (CONTINUED)
TEAM RENTAL GROUP, INC.
CONDENSED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1994 1995
------ ---------
<S> <C> <C>
REVENUE:
Equity in earnings of subsidiaries $749 $ 1,264
EXPENSES: ------ ---------
Personnel .......................... 295 1,301
General and administrative ......... 517 724
------ ---------
812 2,025
------ ---------
LOSS FROM OPERATIONS: (63) (761)
OTHER (INCOME) EXPENSE:
Interest expense ................... 20 852
Interest income .................... (69)
------ ---------
OTHER EXPENSES NET: 20 783
------ ----------
Loss before income taxes ............ (83) (1,544)
Benefit for income taxes ............ 333 1,881
------ ---------
Net income .......................... $250 $ 337
====== =========
</TABLE>
See notes to financial statements.
II-14
<PAGE>
SCHEDULE I (CONTINUED)
TEAM RENTAL GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 250 $ 337
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in earnings of subsidiaries ....................... 749 1,264
(Increase) decrease in other assets ...................... (1,436) 1,201
Increase in accounts payable and accrued liabilities .... 1,901 407
--------- ---------
Net cash provided by operations .......................... 1,464 3,209
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Increase in investments in subsidiaries ................... $(56) (3,403) (8,221)
------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable ............................... 39 2,571 6,845
Purchase of treasury stock ................................ (330)
Cash received from stockholder advances, net .............. 20
------- --------- ---------
Net cash provided by financing activities ................ 59 2,571 6,515
------- --------- ---------
Net increase in cash and cash equivalents .................. 3 632 1,503
Cash and cash equivalents, beginning of period ............. 3 635
------- --------- ---------
Cash and cash equivalents, end of period ................... $ 3 $ 635 $ 2,138
======= ========= =========
</TABLE>
See notes to financial statements.
II-15
<PAGE>
SCHEDULE I (CONTINUED)
TEAM RENTAL GROUP, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These condensed financial statements consist of the parent company financial
statements only of Team Rental Group, Inc. (the "Company") unconsolidated for
any subsidiaries or divisions of the consolidated group. For the purpose of
these stand alone parent company financial statements, the Company accounts for
its investments in subsidiaries under the equity method of accounting.
These financial statements should be read in conjunction with the consolidated
financial statements of the Company for each of the three years in the period
ended December 31, 1995. The Company was formed on December 31, 1992 as a
holding company for a number of companies engaged in the rental of vehicles,
including cars, trucks and passenger vans. For the year ended December 31, 1993
the Company had no operations.
II-16
<PAGE>
SCHEDULE II
TEAM RENTAL GROUP, INC.
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C--ADDITIONS
--------------------------
(2)--
COLUMN B (1)-- CHARGED TO
BALANCE AT CHARGED TO OTHER COLUMN D-- COLUMN E--
BEGINNING OF COSTS AND ACCOUNTS DEDUCTIONS BALANCE AT END
COLUMN A--DESCRIPTION PERIOD EXPENSES DESCRIBED DESCRIBED OF PERIOD
- ----------------------------------------- -------------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts--trade
and vehicle receivable--1993 activity .. $385 $(112) $ 273
-------------- ------------ ---------------
Allowance for doubtful accounts--trade
and vehicle receivable--1994 activity .. $273 $ 228 $ 501
-------------- ------------ ---------------
Allowance for doubtful accounts--trade
and vehicle receivable--1995 activity .. $501 $1,796 $2,297
-------------- ------------ ---------------
</TABLE>
II-17
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions referred to in Item 14 or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against the public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Company hereby undertakes that:
1. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of New York, State of New
York on May 24, 1996.
TEAM RENTAL GROUP, INC.
By: /s/ John P. Kennedy
John P. Kennedy
President and Chief Operating
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Sanford Miller and John Kennedy, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement or any registration statement for this offering that is to be
effective upon the filing pursuant to rule 462(b) under the Securities Act of
1933, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on this 24th day of May, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------- -----------------------------------------------------
<S> <C>
/s/ Sanford Miller Chairman of the Board and Chief Executive Officer
Sanford Miller (Principal Executive Officer) and Director
/s/ John P. Kennedy
John P. Kennedy President, Chief Operating Officer and Director
/s/ Jeffrey D. Congdon Chief Financial Officer (Principal Financial and
Jeffrey D. Congdon Accounting Officer), Secretary and Director
/s/ Ronald D. Agronin
Ronald D. Agronin Director
/s/ James F. Calvano
James F. Calvano Director
/s/ Dr. Stephen L. Weber
Stephen L. Weber Director
/s/ Jeffrey R. Mirkin
Jeffrey R. Mirkin Director
/s/ Alan D. Liker
Alan D. Liker Director
</TABLE>
II-19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
<S> <C> <C>
**1.1 Form of Underwriting Agreement.
Share Exchange Agreement dated April 25, 1994 among Team Rental Group, Inc.,
Sanford Miller, Jeffrey Congdon, John Kennedy, Brian Britton, Richard Hinkle
and Richard Sapia (incorporated by reference to Exhibit 10.24 to the Company's
2.1 Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
First Amendment to Share Exchange Agreement dated June 13, 1994 among Team
Rental Group, Inc., Sanford Miller, Jeffrey Congdon, John Kennedy, Brian
Britton, Richard Hinkle and Richard Sapia (incorporated by reference to
Exhibit 10.36 to Amendment No. 1 to the Company's Registration Statement on
2.2 Form S-1, File No. 33-78274, dated June 17, 1994).
Second Amendment to Share Exchange Agreement dated July 5, 1994 among Team
Rental Group, Inc., Sanford Miller, Jeffrey Congdon, John Kennedy, Brian
Britton, Richard Hinkle and Richard Sapia (incorporated by reference to
Exhibit 10.38 to Amendment No. 2 to the Company's Registration Statement on
2.3 Form S-1, File No. 33-78274, dated July 7, 1994).
Asset Purchase Agreement, dated April 25, 1994, among Freedom River, Inc.,
Chrysler Credit Corporation, Team Rental of Cincinnati, Inc., Team Rental of
Philadelphia, Inc. and Team Rental of Pittsburgh, Inc. (incorporated by
reference to Exhibit 10.21 to the Company's Registration Statement on Form
2.4 S-1, File No. 33-78274, dated April 28, 1994).
Agreement, dated October 20, 1995, among Team Rental Group, Inc., Team Rental
of Southern California, Inc., BRAC-OPCO, Inc., and Budget Rent a Car of
Southern California (incorporated by reference to Exhibit 2.5 to the Company's
2.5 Annual Report on Form 10-K for the year ended December 31, 1995).
Stock Purchase Agreement, dated as of December 21, 1995, by and among the
Company, Arizona Rent-A-Car Systems, Inc., David Katzin, Michael Katzin, Jon
David Katzin, Gabrielle De Lavigne, the David Katzin Irrevocable Trust (dated
November 17, 1989) and Katzin Investments L.C. (incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K dated December 21,
2.6 1995).
Stock Purchase Agreement, dated as of November 1, 1994, by and between Team
Rental of Ft. Wayne, Inc., Sanford Miller, Richard Sapia and Andrew Klein
(incorporated by reference to Exhibit 10.38 to the Company's Annual Report on
2.7 Form 10-K for the year ended December 31, 1994).
Agreement, dated as of December 20, 1994, among the Company, MacKay Car &
Truck Rentals, Inc. and Kenneth V. MacKay (incorporated by reference to
Exhibit 10 to the Company's Current Report on Form 8-K dated January 13,
2.8 1995).
Agreement, dated December 22, 1994, by and among Don Kremer Lincoln Mercury,
Inc., Richard E. Hagopian, and Team Rental Group, Inc. (incorporated by
reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the
2.9 year ended December 31, 1995).
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
Agreement, dated as of March 8, 1995, among Team Rental of Connecticut, Inc.,
Team Rental Group, Inc., Rental Car Resources Inc. and James Salatto and
Joseph Salatto (incorporated by reference to Exhibit 10.31 to the Company's
2.10 Annual Report on Form 10-K for the year ended December 31, 1995).
Amended and Restated Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 to the Company's Registration Statement on Form
3.1 S-1, File No. 33-78274, dated April 28, 1994).
By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, File No. 33-78274, dated April
3.2 28, 1994).
Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the
4.1 Company's Annual Report on Form 10-K for the year ended December 31, 1995).
Base Indenture between Team Fleet Financing Corporation, as Issuer, Team
Rental Group, Inc., as Servicer and Team Interestholder, and Bankers Trust
Company, as Trustee, relating to Rental Car Asset Backed Notes (incorporated
by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for
4.2 the year ended December 31, 1994).
Supplemental Indenture relating to Rental Car Asset Backed Notes (incorporated
by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for
4.3 the year ended December 31, 1994).
Base Indenture among BRAC SOCAL Funding Corporation, as Issuer, BRAC-OPCO,
Inc., as Servicer and Retained Interestholder, and Bankers Trust Company, as
Trustee (incorporated by reference to Exhibit 4.5 to the Company's Annual
4.4 Report on Form 10-K for the year ended December 31, 1995).
Series 1995-1 Supplement to Base Indenture among BRAC SOCAL Funding
Corporation, as Issuer, BRAC-OPCO, Inc., as Servicer and Retained
Interestholder, and Bankers Trust Company, as Trustee (incorporated by
reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the
4.5 year ended December 31, 1995).
Supplement No. 1 to Indenture, dated as of October 20, 1995, among BRAC SOCAL
Funding Corporation, BRAC-OPCO, Inc., Team Rental of Southern California,
Inc., and Bankers Trust Company (incorporated by reference to Exhibit 4.7 to
the Company's Annual Report on Form 10-K for the year ended December 31,
4.6 1995).
Form of Base Indenture between Team Fleet Financing Corporation, as Issuer,
Team Rental Group, Inc., as Servicer and Team Interestholder, and Bankers
**4.7 Trust Company, as Trustee, relating to the Third Fleet Financing Facility.
Form of Series 1996-a Supplemental to Base Indenture among Team Fleet
Financing Corporation, as Issuer, Team Rental Group, Inc., as Servicer and
Team Interestholder, and Bankers Trust Company, as Trustee, relating to the
**4.8 Third Fleet Financing Facility.
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
Master Motor Vehicle Lease and Servicing Agreement by and among Team Fleet
Financing Corporation, as Lessor, Team Rental Group, Inc., as Guarantor, and
Tranex Rentals of New York, Inc., Capital City Leasing, Inc., Lee-Al, Inc.,
Westeam Enterprises, Inc., Team Rental of Philadelphia, Inc., Team Rental of
Pittsburgh, Inc. and Team Rental of Cincinnati, Inc., as Lessees (incorporated
by reference to Exhibit 4.3 to the Company's Annual Report on form 10-K for
4.9 the year ended December 31, 1994).
Master Motor Vehicle Lease and Servicing Agreement, dated February 15, 1995
among BRAC SOCAL Funding Corporation, as Lessor, BRAC OPCO, Inc. and certain
**4.10 other affiliates, as Lessees, relating to the Second Fleet Financing Facility.
Form of Master Motor Vehicle Lease and Servicing Agreement among Team Fleet
Financing Corporation, as Lessor, Team Rental Group, Inc., as Guarantor and
certain of its affiliates, as Lessees, relating to the Third Fleet Financing
**4.11 Facility.
Registration Rights Agreement, dated as of August 25, 1994, among the Company,
Brian Britton, Jeffrey Congdon, Richard Hinkle, John Kennedy, Sanford Miller
and Richard Sapia (incorporated by reference to Exhibit 10.23 to the Company's
4.12 Annual Report on Form 10-K for the year ended December 31, 1994).
First Amendment to Registration Rights Agreement, dated as of November 1,
1994, among the Company, Brian Britton, Jeffrey Congdon, Richard Hinkle, John
Kennedy, Sanford Miller and Richard Sapia (incorporated by reference to
Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended
4.13 December 31, 1994).
Letter Agreement, dated as of November 1, 1994, between Andrew Klein and the
Company acknowledging that Andrew Klein is a party to the Registration Rights
Agreement, dated as of August 25, 1994, as amended (incorporated by reference
to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year
4.14 ended December 31, 1994).
Registration Rights Agreement, dated March 8, 1995, by and among Team Rental
Group, Inc. and James Salatto (incorporated by reference to Exhibit 4.12 to
the Company's Annual Report on Form 10-K for the year ended December 31,
4.15 1995).
Registration Rights Agreement, dated as of October 20, 1995, between Team
Rental Group, Inc. and Budget Rent a Car of Southern California (incorporated
by reference to Exhibit 4.13 to the Company's Annual Report on Form 10-K for
4.16 the year ended December 31, 1995).
Registration Rights Agreement, dated as of February 27, 1996, between Team
Rental Group, Inc. and Katzin Investments L.C. (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated February 27,
4.17 1996).
Warrant No. 1-1994, dated as of August 24, 1994, to purchase 175,000 shares of
Class A Common Stock, par value $.01 per share, of the Company, issued to
Budget Rent a Car Corporation (incorporated by reference to Exhibit 10.26 to
the Company's Annual Report on Form 10-K for the year ended December 31,
4.18 1994).
**5.1 Opinion of King & Spalding.
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
Sublicense Agreement dated April 1, 1987 between Budget Rent A Car of Southern
California and Westeam Enterprises, Inc. (incorporated by reference to Exhibit
10.1 to the Company's Registration Statement on Form S-1, File No. 33-78274,
10.1 dated April 28, 1994).
Sublicense Agreement dated October 28, 198 between Budget Rent A Car of
Southern California and Lee-Al, Inc. (incorporated by reference to Exhibit
10.3 to the Company's Registration Statement on Form S-1, File No. 33-78274,
10.2 dated April 28, 1994).
Letter Agreement dated October 23, 1989 between Transportation and Storage
Associates d/b/a Budget Rent a Truck of Southern California and Budget Rent a
**10.3 Car of Southern California.
Prime License Agreement dated August 25, 1994 between Budget Rent A Car
Corporation and Team Rental of Pittsburgh, Inc. d/b/a Budget Rent A Car of
Pittsburgh, Pennsylvania, together with Addendum to License Agreement: Right
of First Refusal, dated August 25, 1994 (incorporated by reference to Exhibit
10.5 to the Company's Annual Report on form 10-K for the year ended December
10.4 31, 1994).
Prime License Agreement dated August 25, 1994 between Budget Rent A Car
Corporation and Team Rental of Cincinnati, Inc. d/b/a Budget Rent A Car of
Cincinnati, Ohio (incorporated by reference to Exhibit 10.6 to the Company's
10.5 Annual Report on form 10-K for the year ended December 31, 1994).
Prime License Agreement dated August 25, 1994 between Budget Rent A Car
Corporation and Team Rental of Philadelphia, Inc. d/b/a Budget Rent A Car of
Philadelphia, Pennsylvania, together with Addendum to License Agreement dated
August 25, 1994 and Addendum to License Agreement: Right of First Refusal,
dated August 25, 1994 (incorporated by reference to Exhibit 10.7 to the
10.6 Company's Annual Report on Form 10-K for the year ended December 31, 1994).
Prime License Agreement dated July 1, 1985 between Budget Rent a Car
Corporation and Capital City Leasing, Inc. d/b/a Budget Rent a Car of
Richmond, Virginia, as amended by the Letter dated April 26, 1994 from Budget
Rent a Car Corporation to Team Rental Group together with Consent Agreement
Assignment of Prime License dated December 5, 1991 among Budget Rent a Car
Corporation, JHF Enterprises, Inc. and Capital City Leasing, Inc. d/b/a Budget
Rent a Car of Richmond, Virginia (incorporated by reference to Exhibit 10.9 to
the Company's Registration Statement on Form S-1, File No. 33-78274, dated
10.7 April 28, 1994).
Prime License Agreement dated November 8, 1991 between Budget Rent a Car
Corporation and Tranex Rentals of New York, Inc. d/b/a Budget Rent a Car of
Rochester, New York (incorporated by reference to Exhibit 10.10 to the
Company's Registration Statement on Form S-1, File No. 33-78274, dated April
10.8 28, 1994).
Prime License Agreement dated August 1, 1991, between Budget Rent A Car
Corporation and Tranex Rentals of New York, Inc. d/b/a Budget Rent A Car of
Albany, New York (incorporated by reference to Exhibit 10.2 to the Company's
10.9 Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
Budget Rent a Car System Prime License Agreement, dated August 25, 1994,
between Budget Rent a Car Corporation and Westeam Enterprises, Inc. d/b/a
Budget Rent a Truck of San Diego, California (incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended
10.10 December 31, 1994).
Amended and Restated Sublicense Agreement, dated as of October 20, 1995,
between Budget Rent a Car of Southern California and Team Rental of Southern
California, Inc., along with Corporate Guaranty of Team Rental Group, dated as
of October 20, 1995 (incorporated by reference to Exhibit 10.11 to the
10.11 Company's Annual Report on Form 10-K for the year ended December 31, 1995).
Car Rental Operating License dated October 1, 1982 between the City of
Philadelphia, Automotive Rentals, Inc. d/b/a Budget Rent A Car of Philadelphia
and Budget Rent A Car Corporation (incorporated by reference to Exhibit 10.11
to the Company's Registration Statement on Form S-1, File No. 33-78274, dated
10.12 April 28, 1994).
Prime License Agreement dated February 1, 1995 by and between Budget Rent a
Car Corporation and Team Rental of Connecticut, Inc. d/b/a Budget Rent a Car
of Hampden, Massachusetts (incorporated by reference to Exhibit 10.13 to the
10.13 Company's Annual Report on Form 10-K for the year ended December 31, 1995).
Prime License Agreement dated February 1, 1995 by and between Budget Rent a
Car Corporation and Team Rental of Connecticut, Inc. d/b/a Budget Rent a Car
of Hartford and New Haven, Connecticut (incorporated by reference to Exhibit
10.14 to the Company's Annual Report on Form 10-K for the year ended December
10.14 31, 1995).
Prime License Agreement dated December 22, 1994 by and between Budget Rent a
Car Corporation and Team Rental of Dayton, Inc. d/b/a Budget Rent a Car of
Dayton and Budget Car Sales (incorporated by reference to Exhibit 10.15 to the
10.15 Company's Annual Report on Form 10-K for the year ended December 31, 1995).
Prime License Agreement dated December 22, 1994 by and between Budget Rent a
Car Corporation and Team Rental of Dayton, Inc. d/b/a Budget Rent a Car of
Richmond, Indiana (incorporated by reference to Exhibit 10.16 to the Company's
10.16 Annual Report on Form 10-K for the year ended December 31, 1995).
Prime License Agreement dated January 4, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Charlotte, Inc. d/b/a Budget Rent a Car of
Hickory, North Carolina (incorporated by reference to Exhibit 10.17 to the
10.17 Company's Annual Report on Form 10-K for the year ended December 31, 1995).
Prime License Agreement dated January 4, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Charlotte, Inc. d/b/a Budget Rent a Car of
Charlotte, North Carolina (incorporated by reference to Exhibit 10.18 to the
10.18 Company's Annual Report on Form 10-K for the year ended December 31, 1995).
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
Prime License Agreement dated January 4, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Charlotte, Inc. d/b/a Budget Rent a Car of
Asheville, North Carolina (incorporated by reference to Exhibit 10.19 to the
10.19 Company's Annual Report on Form 10-K for the year ended December 31, 1995).
Prime License Agreement dated October 1, 1976 by and between Budget Rent a Car
Corporation of America and Don Kremer, Inc. d/b/a Budget Rent a Car of Dayton,
as amended by Amendment to License Agreement dated November 1, 1991
(incorporated by reference to Exhibit 10.20 to the Company's Annual Report on
10.20 Form 10-K for the year ended December 31, 1995).
Prime License Agreement dated January 28, 1986 between Budget Rent a Car
Corporation and Tranex Rentals, Inc. d/b/a Budget Rent a Car of Ft. Wayne,
Indiana, together with Consent Agreement dated August 1, 1993 among Budget
**10.21 Rent a Car Corporation, Tranex Rentals, Inc. and Ft. Wayne Rental Group, Inc.
Agreement dated November 23, 1960 between Rent-A-Car Services Corporation and
Frank Katzin, Ernst Sielaff and Harry Verblen, as co-partners, d/b/a Budget
Rent-A-Car of Arizona, as amended by the Addendum dated November 23, 1960, the
Agreement dated October , 1961, the Release Agreement dated December 30,
1963, the Amendatory Agreement dated November 1, 1966, the Amendment to
Franchise Agreement dated March 18, 1968, the Addendum to License Agreement
dated April 4, 1969, the Amendatory Agreement dated August 31, 1979, the
Second Amendatory Agreement dated August 31, 1979 and the letter agreement
dated January 27, 1981, together with the Consent to and Agreement of
Assignment dated December , 1962 among Budget Rent-A-Car Corporation of
America, Frank Katzin, Harry Verblen and Ernst Sielaff, as co-partners d/b/a
Budget Rent-A-Car of Arizona, and David Katzin and Charles H. Juliusburg, and
the Consent to and Agreement of Assignment dated April 3, 1968 among Budget
Rent-A-Car Corporation of America, Frank Katzin, Ernst Sielaff, David Katzin
and Charles Juliusburg, as co-partners d/b/a budget Rent-A-Car of Arizona,
**10.22 Margaret F Katzin.
Lease Agreement dated September 1, 1993 between Tranex Partners and Tranex
Rentals of New York, Inc., as amended by First Agreement dated as of July 1,
1994 (incorporated by reference to Exhibit 10.40 to the Company's Registration
10.23 Statement on Form S-1, File No. 33-78274).
Airport Concession Agreement between City of Phoenix (Aviation Department) and
**10.24 Arizona Rent-a-Car Systems, Inc. dated November 1, 1990.
Lease Agreement dated September 1, 1993 between Miller and Hinkle, a Florida
general partnership, and Capital City Leasing, Inc., as amended by First
Amendment dated as of July 1, 1994 (Henrico County, Virginia) (incorporated by
reference to Exhibit 10.41 to Amendment No. 3 to the Company's Registration
10.25 Statement on Form S-1, File No. 33-78274, dated August 12, 1994).
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
Lease Agreement dated June 1, 1994 between Miller and Hinkle, a Florida
general partnership, and Capital City Leasing, Inc. (Chesterfield County,
**10.26 Virginia).
Lease Agreement dated as of September 12,1995 between MCK Real Estate
Corporation, Team Car Sales of Richmond, Inc. and Team Rental Group, Inc.
(incorporated by reference to Exhibit 10.24 to the Company's Annual Report on
10.27 Form 10-K for the year ended December 31, 1995).
Agreement of Lease dated as of August 31,1995 between MCK Real Estate
Corporation and Team Rental of Philadelphia, Inc. (incorporated by reference
to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year
10.28 ended December 31, 1995).
Environmental Remediation Agreement between Chrysler Credit Corporation and
Team Rental Group, Inc. (incorporated by reference to Exhibit 10.17 to the
10.29 Company's Annual Report on Form 10-K for the year ended December 31, 1994).
Agreement between Team Rental Group, Inc. and Transportation & Storage
Associates dated April 5, 1994 (incorporated by reference to Exhibit 10.5 to
the Company's Registration Statement on Form S-1, File No. 33-78274, dated
10.30 April 28, 1994).
Share Purchase Agreement dated January 11, 1996 between Chrysler Corporation
and the Company (incorporated by reference to Exhibit 2.2 to the Company's
10.31 Form 10-Q for the quarter ended March 31, 1996).
First Amended and Restated Credit Agreement, dated as of January 12, 1995,
among Team Fleet Services Corporation, the Company and NBD Bank, N.A.
(incorporated by reference to Exhibit 10.40 to the Company's Annual Report on
10.32 Form 10-K for the year ended December 31, 1994).
First Amendment to Credit Agreement dated May 23, 1995 (incorporated by
reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K for the
10.33 year ended December 31, 1995).
Second Amendment to Credit Agreement dated July 11, 1995 (incorporated by
reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for the
10.34 year ended December 31, 1995).
Third Amendment to Credit Agreement dated December 29, 1995 (incorporated by
reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K for the
10.35 year ended December 31, 1995).
Fourth Amendment to Credit Agreement dated February 27, 1996 (incorporated by
reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the
10.36 year ended December 31, 1995).
Fifth Amendment to Credit Agreement dated March 28, 1996 (incorporated by
reference to Exhibit 10.3 to the Company's Form 10-Q for the quarter ended
10.37 March 31, 1996)
**10.38 Sixth Amendment to Credit Agreement dated April 30, 1996.
Credit Agreement dated May 16, 1995 by and among TeamRental Group, Inc., Team
Fleet Services Corporation and BankOne Indianapolis, N.A. (incorporated by
reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K for the
10.39 year ended December 31, 1995).
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
First Amendment to BankOne Credit Agreement dated November 1, 1995
(incorporated by reference to Exhibit 10.43 to the Company's Annual Report on
10.40 Form 10-K for the year ended December 31, 1995).
Second Amendment to BankOne Credit Agreement dated February 2, 1996
(incorporated by reference to Exhibit 10.44 to the Company's Annual Report on
10.41 Form 10-K for the year ended December 31, 1995).
Form of World Omni, Inc. Term Note (incorporated by reference to Exhibit 10.45
to the Company's Annual Report on Form 10-K for the year ended December 31,
10.42 1995).
Promissory Note, dated February 27, 1996, from Team Rental of Southern
California, Inc. to Budget Rent a Car of Southern California in the principal
amount of approximately $4,775,000 (incorporated by reference to Exhibit 10.46
to the Company's Annual Report on Form 10-K for the year ended December 31,
10.43 1995).
Promissory Note, dated February 27, 1996, from the Company to Katzin
Investments L.C. in the aggregate principal amount of $10,000,000
(incorporated by reference to Exhibit 10.47 to the Company's Annual Report on
10.44 Form 10-K for the year ended December 31, 1995).
Term Note dated February 27, 1996 from NationsBank, N.A. (South) to the
Company (incorporated by reference to Exhibit 10.48 to the Company's Annual
10.45 Report on Form 10-K for the year ended December 31, 1995).
Amendment No. 1 to Team Note dated April 2, 1996 from NationsBank, N.A.
(South) to the Company (incorporated by reference to Exhibit 10.2 to Form 10-Q
10.46 for the quarter ended March 31, 1996).
Revolving Credit Agreement by and between VPSI, Inc. and NationsBank, N.A.
(South) dated February 6, 1996 (incorporated by reference to Exhibit 10.4 to
10.47 the Company's Form 10-Q for the quarter ended March 31, 1996).
Amendment and Waiver No. 1 to Revolving Credit Agreement and Security
Agreement by and between VPSI, Inc. and NationsBank, N.A. (South) dated March
28, 1996 (incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q
10.48 for the quarter ended March 31, 1996).
Subordination Agreement, dated as of October 20, 1995, among Budget Rent a Car
of Southern California, BRAC-OPCO, Inc., Team Rental Group, Inc. and Team
Rental of Southern California (incorporated by reference to Exhibit 10.49 to
the Company's Annual Report on Form 10-K for the year ended December 31,
10.49 1995).
Shareholders' Agreement, dated as of October 20, 1995, by and among Team
Rental Group, Inc., the holders of the Company's Class B Common Stock, and
Budget Rent a Car of Southern California (incorporated by reference to Exhibit
10.50 to the Company's Annual Report on Form 10-K for the year ended December
10.50 31, 1995).
1994 Option Plan (incorporated by reference to Exhibit 10.27 to the Company's
10.51 Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
1994 Director's Plan (incorporated by reference to Exhibit 10.28 to the
Company's Registration Statement on Form S-1, File No. 33-78274, dated April
10.52 28, 1994).
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
Indemnification Agreement dated April 25, 1994 between the Company and Sanford
Miller (incorporated by reference to Exhibit 10.29 to the Company's
10.53 Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
Indemnification Agreement dated April 25, 1994 between the Company and John
Kennedy (incorporated by reference to Exhibit 10.30 to the Company's
10.54 Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
Indemnification Agreement dated April 25, 1994 between the Company and Jeffrey
Congdon (incorporated by reference to Exhibit 10.31 to the Company's
10.55 Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
Indemnification Agreement dated April 25, 1994 between the Company and Ronald
Agronin (incorporated by reference to Exhibit 10.32 to the Company's
10.56 Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
Indemnification Agreement dated April 25, 1994 between the Company and Stephen
Weber (incorporated by reference to Exhibit 10.33 to the Company's
10.57 Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
*11.1 Statement re computation of per share earnings.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Deloitte & Touche LLP
*23.2 Consent of Michael Silver & Company
*23.3 Consent of Coopers & Lybrand L.L.P.
**23.4 Consent of King & Spalding (included in Exhibit 5.1).
*27.1 Financial Data Schedule.
</TABLE>
- ------------
* Filed herewith.
** To be filed amendment.
<PAGE>
EXHIBIT 11.1
TEAM RENTAL GROUP, INC.
COMPUTATION OF PER SHARE EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
WEIGHTED AVERAGE NUMBER OF SHARES:
Average common shares outstanding ...... 3,703,922 6,369,108
Dilutive effect for options and warrants 8,750 N/A(b)
----------- -----------
Weighted average shares outstanding .... 3,712,672 6,369,108
=========== ===========
Net income ($000) ........................ $ 250 $ 337
=========== ===========
Primary income per share ................. $ 0.07(a) $ 0.05(a)
=========== ===========
FULLY DILUTED EARNINGS PER SHARE
WEIGHTED AVERAGE NUMBER OF SHARES:
Average common shares outstanding ...... 3,703,922 6,369,108
----------- -----------
Dilutive effect for options and warrants 8,750 N/A(b)
----------- -----------
Net income ($000) ........................ $ 250 $ 337
=========== ===========
Fully diluted income per share ........... $ 0.07(a) $ 0.05(a)
=========== ===========
</TABLE>
- ------------
Note:
(a) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
(b) The effects of options and warrants in the computation of primary and
fully diluted earnings per share for the year ended December 31, 1995
was anti-dilutive.
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF TEAM RENTAL GROUP, INC.
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION NAMES UNDER WHICH IT DOES BUSINESS
- ------------------------------------------ ------------------ ----------------------------------------------------
<S> <C> <C>
Arizona Rent-A-Car Systems, Inc. Delaware
Capital City Leasing, Inc. Florida Budget Rent a Car of Richmond, Virginia
Dayton Auto Lease Company Ohio
Don Kremer, Inc. Ohio
Fort Wayne Rental Group, Inc. Delaware
Lee-Al, Inc. California Budget Rent a Car of San Diego
MacKay Car & Truck Rentals, Inc. North Carolina Budget Rent a Car of North Carolina
Metro West, Inc. Delaware
Team Car Sales of Charlotte, Inc. Delaware
Team Car Sales of Dayton, Inc. Delaware Budget Rent a Car of Dayton
Team Car Sales of Philadelphia, Inc. Delaware
Team Car Sales of Richmond, Inc. Delaware
Team Car Sales of San Diego, Inc. Delaware
Team Car Sales of Southern California, Delaware
Inc.
Team Fleet Financing Corporation Delaware
Team Fleet Services Corporation Delaware
Team Realty Services, Inc. Delaware
Team Rental of Cincinnati, Inc. Delaware Budget Rent a Car of Cincinnati
Team Rental of Connecticut, Inc. Delaware Budget Rent a Car of Connecticut
Budget Rent a Car of Hartford
Team Rental of Ft. Wayne, Inc. Delaware Budget Rent a Car of Ft. Wayne
Team Rental of Philadelphia, Inc. Delaware Budget Rent a Car of Philadelphia
Team Rental of Pittsburgh, Inc. Delaware Budget Rent a Car of Pittsburgh
Team Rental of Rochester, Inc. Delaware Budget Rent a Car of Rochester, NY
Team Rental of Southern California, Inc. Delaware Budget Rent a Car of Southern California
Tranex Rentals of New York, Inc. New York Budget Rent a Car of Albany, NY
VPSI, Inc. Delaware Van Pool Services, Inc.
Westeam Enterprises, Inc. California Budget Car and Truck Rentals of San Diego County
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Team Rental Group,
Inc. on Form S-1 of our report dated April 12, 1996, appearing in the
Prospectus, which is part of this Registration Statement, and of our report
dated April 12, 1996 relating to the financial statement schedules appearing
elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
May 24, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our auditors report dated May 3, 1996
(covering the years ended February 28, 1994 and 1995 and February 29, 1996)
for Arizona Rent-A-Car Systems, Inc. into this Registration Statement on Form
S-1 and to the reference to our firm under the heading "Experts" in such
Registration Statement.
Michael Silver & Company
Certified Public Accountants
Skokie, Illinois
May 23, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(Registration No.333- ) of our report dated March 23, 1995 on our audits of
the financial statements of BRAC-OPCO, Inc. We also consent to the reference
to our firm under the caption "Experts".
Coopers & Lybrand
L.L.P.
Sherman Oaks, California
May 24, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 28,871
<SECURITIES> 0
<RECEIVABLES> 31,720
<ALLOWANCES> (2,342)
<INVENTORY> 328,423
<CURRENT-ASSETS> 0
<PP&E> 32,553
<DEPRECIATION> (13,665)
<TOTAL-ASSETS> 478,677
<CURRENT-LIABILITIES> 30,554
<BONDS> 400,968
0
0
<COMMON> 74
<OTHER-SE> 43,522
<TOTAL-LIABILITY-AND-EQUITY> 478,677
<SALES> 65,794
<TOTAL-REVENUES> 65,949
<CGS> 58,540
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,281
<INCOME-PRETAX> 2,128
<INCOME-TAX> 851
<INCOME-CONTINUING> 1,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,277
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
