<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-34799
4,717,500 SHARES
[BUDGET LOGO]
BUDGET GROUP, INC.
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
All the shares of Class A Common Stock offered hereby (the "Offering") are
being sold by the Selling Stockholders. See "Principal and Selling
Stockholders". The Company will not receive any of the proceeds from the sale of
the shares.
The Company has two classes of Common Stock, the Class A Common Stock, par
value $.01 per share, and the Class B Common Stock, par value $.01 per share.
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. Upon
completion of the Offering, the Principal Executive Officers of the Company will
retain 49.5% of the combined voting power of both classes of Common Stock. See
"Principal and Selling Stockholders".
The last reported sale price of the Class A Common Stock, which is listed
on the New York Stock Exchange under the symbol "BD", on September 30, 1997 was
$33.00 per share. See "Price Range of Common Stock".
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
------------------------
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>
PUBLIC PROCEEDS TO
OFFERING UNDERWRITING SELLING
PRICE DISCOUNT(1) STOCKHOLDERS
------------ ------------ ------------
<S> <C> <C> <C>
Per Share............................................ $33.00 $1.40 $31.60
Total(2)............................................. $155,677,500 $6,604,500 $149,073,000
</TABLE>
- ---------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) The Company and the Selling Stockholders have granted the Underwriters
options for 45 days to purchase up to an additional 600,000 shares at the
public offering price per share, less the underwriting discount, solely to
cover over-allotments, if any. If such options are exercised in full, the
total public offering price, underwriting discount, proceeds to Selling
Stockholders and proceeds to the Company will be $175,477,500, $7,444,500,
$153,813,000 and $14,220,000, respectively.
------------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York, on or about
October 6, 1997, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. CREDIT SUISSE FIRST BOSTON
ABN AMRO CHICAGO CORPORATION
BT ALEX. BROWN
MCDONALD & COMPANY
SECURITIES, INC.
J.P. MORGAN & CO.
The date of this Prospectus is October 1, 1997.
<PAGE> 2
[Picture of Budget key fob]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
2
<PAGE> 3
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 otherwise
indicated, the information contained in this Prospectus assumes that the
Underwriters' over-allotment options are not exercised. As used in this
Prospectus, unless the context otherwise requires, (i) "TEAM" refers to Budget
Group, Inc. and its subsidiaries prior to its acquisition of Budget Rent a Car
Corporation on April 29, 1997 (the "Budget Acquisition"); (ii) "BRACC" refers to
Budget Rent a Car Corporation and its subsidiaries; (iii) the "Company" or
"Budget Group" refers to TEAM (including BRACC) after giving effect to the
Budget Acquisition; (iv) the "Budget System" or "Budget" refers to the business
of renting cars and trucks and retailing late model vehicles conducted by the
Company and its franchisees under the Budget name and (v) "Selling Stockholders"
refers to Ford FSG, Inc., an affiliate of Ford Motor Company ("Ford"), Atlantic
Equity Corporation, a wholly owned subsidiary of NationsBank Corporation
("NationsBank"), Budget Rent-A-Car of Southern California ("SoCal"), a licensee
of the Company, and Alan D. Liker, a director of the Company. See "Principal and
Selling Stockholders". In connection with the Budget Acquisition, Team Rental
Group, Inc. changed its name to Budget Group, Inc. "Common Stock", as used
herein, refers collectively and without distinction to 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"), of the Company.
THE COMPANY
The Company and its franchisees operate the third largest worldwide general
use car and truck rental system, with approximately 3,200 locations and a peak
fleet size during 1996 of 266,000 cars and 18,000 trucks. The Budget System
includes locations in both the airport and local (downtown and suburban) markets
in all major metropolitan areas in the United States, in many other small and
mid-size U.S. markets and in more than 110 countries worldwide. Pro forma for
the Budget Acquisition, the Budget System included approximately 455
company-owned locations in the United States at December 31, 1996, accounting
for approximately 76% of 1996 U.S. system-wide revenues. In addition, Budget
franchisees operated approximately 500 royalty-paying franchise locations in the
United States at December 31, 1996. Budget is one of only three vehicle rental
systems that offer rental vehicles throughout the world under a single brand
name, with locations in Europe, Canada, Latin America, the Middle East,
Asia/Pacific and Africa. The Budget System currently maintains more local market
rental locations throughout the world than its major competitors. The Budget
System is also unique among major car rental systems in that it rents trucks in
most major markets worldwide. The Budget System's consumer truck rental fleet is
the fourth largest in the United States. The Budget System had vehicle rental
revenues of $2.5 billion for 1996.
The Company is also one of the largest independent retailers of late model
vehicles in the United States, with 23 retail car sales facilities and pro forma
revenues of $246.9 million for 1996. The Company operates its retail car sales
facilities under the name "Budget Car Sales".
On April 29, 1997, the Company acquired all the capital stock of BRACC
pursuant to a series of stock purchase agreements among TEAM, Ford, BRACC and
the common stockholder of BRACC (the "Stock Purchase Agreements"). The
consideration paid by the Company pursuant to the Stock Purchase Agreements
consisted of approximately $275.0 million in cash and the issuance to Ford of
4,500 shares of Series A Convertible Preferred Stock of the Company
(representing all the outstanding shares of such series). See "The Budget
Acquisition". Each share of Series A Convertible Preferred Stock is non-voting,
does not carry a dividend and is convertible into 1,000 shares of Class A Common
Stock. In connection with the Offering, 4,400 shares of Series A Convertible
Preferred Stock issued to Ford will convert into 4,400,000 shares of Class A
Common Stock, which are being offered hereby.
3
<PAGE> 4
STRATEGY
Management's long-term strategy is to create an automotive services company
which leverages the asset base and expertise of the Company. The Company's
assets include a trade name that is recognized around the world; locations for
the rental, sale and maintenance of vehicles; a workforce that is proficient in
acquiring, financing, monitoring, maintaining and selling cars and trucks; and
advanced information systems to support these operations. Increasing the
utilization of these assets by acquiring automobile-related businesses would
reduce the Company's unit costs and increase profitability. In the near term,
management has developed a business strategy designed to increase the revenues
and improve the profitability of the Company. Key elements of this strategy are
as follows:
Enhance the Budget Brand. The Budget System's company-owned locations
account for approximately 76% of U.S. revenues, which management believes
is a higher percentage than many of its principal competitors. Management
believes this high level of corporate ownership is a competitive advantage
in the marketplace. It facilitates more consistent delivery of high quality
services and improved operations and communications, thereby strengthening
the Budget brand name among customers. In addition, the Company's structure
facilitates national advertising and marketing programs designed to
increase the public's awareness of the Budget brand. Management believes
that there will be continuing opportunities to further consolidate the
Budget System by acquiring additional franchise operations, and that such
consolidation will further strengthen the Budget brand.
Improve the Performance of Car Rental Operations. Historically, TEAM
enhanced the profitability of its acquired franchise territories by
reducing operating costs and increasing rental revenue. Similarly, in 1996,
BRACC began initiatives to improve the performance of its company-owned
operations. Management believes that the Budget Acquisition will enable the
Company to combine key elements of the TEAM and BRACC strategies to achieve
even greater operating efficiencies. The Company expects to undertake
significant initiatives to (i) enhance the performance of its U.S. car
rental operations, (ii) capitalize on the increased level of company-owned
locations, (iii) increase its marketing to corporate accounts, (iv) place
increased emphasis on the leisure and local rental markets (including its
entry into the insurance replacement market), and (v) expand and improve
Budget's international operations.
Continue to 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.
The Company, with 23 retail car sales facilities and pro forma car sales
revenues of $246.9 million for 1996, is one of the largest independent
retailers of late model vehicles in the United States. The Company is
establishing a nationally recognized retail car sales operation which will
provide low-mileage, late model vehicles to consumers in a new car sales
environment under the Budget Car Sales brand.
Expand Truck Rental Operations. With the fourth largest consumer
truck rental fleet in the United States, Budget is unique among major car
rental systems in that it rents trucks to consumers and commercial users in
most major markets worldwide. The Company expects to add truck rental
locations in various markets, particularly in conjunction with the addition
of new local market car rental locations. Management believes that adding
truck rental locations will leverage certain fixed costs and increase
consumer awareness of the Budget brand, while favorable pricing trends in
the truck rental market are expected to provide attractive returns on
invested capital.
---------------------
Sanford Miller (Chairman of the Board and Chief Executive Officer), John P.
Kennedy (Vice Chairman of the Board) and Jeffrey D. Congdon (Vice Chairman of
the Board and Chief Financial Officer) (collectively, the "Principal Executive
Officers") together have over 75 years of experience in the vehicle rental
business and had acquired and operated 54 Budget franchises prior to the Budget
Acquisition. In addition, Messrs. Miller and Congdon together have over 25 years
of experience operating retail car sales facilities.
The principal executive offices of the Company are located at 125 Basin
Street, Suite 210, Daytona Beach, Florida 32114 (telephone number: (904)
238-7035).
4
<PAGE> 5
RECENT DEVELOPMENTS
On July 31, 1997, the Company acquired the fleet and certain other assets
of Premier Rental Car, Inc. ("Premier"). The purchase price consisted of $2.0
million in cash and the refinancing of approximately $85.2 million of
outstanding Premier fleet indebtedness (the "Premier Acquisition"). Premier,
based in Cleveland, Ohio, provides rental cars for the insurance replacement
market and owns and operates 9,000 vehicles from 101 locations in 13 major U.S.
markets. In 1996, Premier had revenues of approximately $61.0 million. Premier
will continue to operate under its own trade name, and the Company does not
expect this acquisition to have a material effect on its earnings in 1997. In
July 1997, the Company acquired the Budget franchise located in Chattanooga,
Tennessee for $3.2 million.
On August 19, 1997, Budget Truck Rental announced that it had entered into
a four-year preferred alliance agreement with HFS Incorporated, making Budget
the exclusive provider of truck rental services promoted to customers of
Coldwell Banker, ERA and Century 21 real estate brands, as well as relocation
customers of HFS Mobility Services, Inc. In September 1997, the Company entered
into a letter of intent to purchase the St. Louis, Missouri Budget franchisee
for approximately $9.0 million, consisting of $1.0 million in cash and $8.0
million in Class A Common Stock. This franchisee has six locations and a peak
fleet of approximately 1,100 vehicles, and had revenues of approximately $16.0
million for 1996.
THE OFFERING
<TABLE>
<S> <C> <C>
Class A Common Stock offered(a).................... 4,717,500 shares
Shares to be outstanding after the Offering:
Class A Common Stock(a).......................... 22,645,583 shares
Class B Common Stock............................. 1,936,600 shares
-----------
Total(b)................................. 24,582,183 shares
===========
Use of proceeds.................................... The Company will receive proceeds from the
Offering only upon exercise of the over-allotment
options. See "Use of Proceeds".
NYSE symbol........................................ BD
</TABLE>
- ---------------
(a) In the event the over-allotment options are exercised in full, the total
number of shares of Class A Common Stock to be offered and the total number
of shares of Class A Common Stock to be outstanding after the Offering
would be 5,317,500 and 23,245,583, respectively.
(b) Does not include (i) 3,986,049 shares of Class A Common Stock issuable upon
conversion of the Company's outstanding 7.0% Convertible Subordinated
Notes, Series A, due 2007 (the "Series A Convertible Notes"); (ii)
1,609,442 shares of Class A Common Stock issuable upon conversion of the
Company's outstanding 6.85% Convertible Subordinated Notes, Series B, due
2007 (the "Series B Convertible Notes" and together with the Series A
Convertible Notes, the "Convertible Notes"); (iii) 100,000 shares of Class
A Common Stock issuable upon conversion of the Series A Convertible
Preferred Stock issued to Ford in the Budget Acquisition that will remain
outstanding if the Underwriters' over-allotment option from Ford is not
exercised; (iv) 1,768,150 shares of Class A Common Stock and 164,000 shares
of Class B Common Stock issuable pursuant to outstanding options; (v)
50,000 shares of Class A Common Stock reserved for issuance upon exercise
of a warrant (the "NationsBank Warrant") that will remain outstanding if
the Underwriters' over-allotment option from Atlantic Equity Corporation is
not exercised; and (vi) 36,667 shares of Class A Common Stock held as
treasury shares. See "Management -- Benefit Plans" and "Description of
Capital Stock -- Warrants".
5
<PAGE> 6
SUMMARY PRO FORMA FINANCIAL DATA
The following tables set forth summary unaudited pro forma financial data
of the Company, which data were derived from the Pro Forma Consolidated
Statements of Operations for the year ended December 31, 1996 and the six months
ended June 30, 1997 included elsewhere in this Prospectus. The pro forma
statements of operations data and other data give effect to the 1996 TEAM
Transactions and the Budget Acquisition Transactions (each as defined under "Pro
Forma Consolidated Statements of Operations") as if they each had occurred on
January 1, 1996. The information below should be read in conjunction with the
Pro Forma Consolidated Statements of Operations and the notes thereto included
elsewhere in this Prospectus. The summary unaudited pro forma financial data set
forth below are presented for information purposes only and do not purport to
represent what the Company's results of operations would have been had the
Transactions actually occurred on the date indicated or to predict the Company's
results of operations in the future.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating revenue:
Vehicle rental revenue.................................... $1,197,888 $ 606,504
Royalty fees.............................................. 52,711 28,612
Retail car sales revenue.................................. 246,936 130,738
Other..................................................... 14,693 3,482
---------- ----------
Total operating revenues........................... $1,512,228 $ 769,336
---------- ----------
Operating costs and expenses:
Direct vehicle and operating.............................. 152,039 79,075
Depreciation -- vehicle................................... 327,436 174,236
Depreciation -- non-vehicle............................... 29,577 13,953
Cost of car sales......................................... 212,330 111,759
Sales, general and administrative......................... 613,769 336,678
Amortization.............................................. 12,517 6,471
---------- ----------
Total operating costs and expenses................. $1,347,668 $ 722,172
---------- ----------
Operating income............................................ $ 164,560 $ 47,164
---------- ----------
Other (income) expense:
Vehicle interest expense.................................. 106,921 56,895
Non-vehicle interest expense.............................. 26,929 11,799
Interest income -- restricted cash........................ (1,818) (1,848)
---------- ----------
Total other (income) expense....................... $ 132,032 $ 66,846
---------- ----------
Income (loss) before income taxes........................... 32,528 (19,682)
Provision for income taxes................................ 11,624 (8,946)
---------- ----------
Net income (loss).................................. $ 20,904 $ (10,736)
========== ==========
Weighted average common and common equivalent shares
outstanding:
Primary................................................... 24,579 24,982
Fully diluted............................................. 28,618 25,286
Earnings per common and common equivalent share:
Primary................................................... $ 0.85 $ (0.43)
Fully diluted............................................. $ 0.85 $ (0.43)
========== ==========
OTHER DATA:
EBITDA(a)................................................... $ 535,908 $ 243,672
Adjusted EBITDA(a).......................................... 101,551 12,541
Ratio of Adjusted EBITDA to non-vehicle interest expense.... 3.8x 1.1x
</TABLE>
- ---------------
(a) EBITDA consists of income before income taxes plus (i) vehicle interest
expense, (ii) non-vehicle interest expense, (iii) vehicle depreciation
expense and (iv) non-vehicle depreciation and amortization expenses.
Adjusted EBITDA consists of income before income taxes plus (i) non-vehicle
interest expense and (ii) non-vehicle depreciation and amortization
expenses. EBITDA and Adjusted EBITDA are not presented as, and should not be
considered, alternative measures of operating results or cash flows from
operations (as determined in accordance with generally accepted accounting
principles), but are presented because they are widely accepted financial
indicators of a company's ability to incur and service debt.
6
<PAGE> 7
SUMMARY OPERATING DATA FOR THE BUDGET SYSTEM
The following tables set forth summary operating data of the Budget System
for the year ended December 31, 1996 and as of December 31, 1996. References to
revenues of the Budget System include revenues received by BRACC and its
franchisees for the rental of cars and trucks. The respective revenue
contributions of locations owned by TEAM or BRACC (referred to as
"company-owned" locations) have been determined by reference to the size of the
vehicle fleet operated from those locations, in that fleet size generally
corresponds to revenue contribution for any particular period. Company-owned and
franchised Budget locations operate within the integrated Budget System and
management believes that system-wide data are useful in analyzing the operations
and market position of the overall Budget System, as well as the relative
contributions of company-owned and franchised locations. Operations and
operating data for franchisees set forth or reflected in system-wide data are
based on reports provided to BRACC by franchisees in accordance with their
franchise agreements and are not based on audited historical financial
statements of those franchisees.
<TABLE>
<CAPTION>
YEAR ENDED PERCENT OF
DECEMBER 31, 1996 BUDGET SYSTEM
----------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
SYSTEM-WIDE DATA:
Vehicle rental revenues:
United States:
BRACC-owned........................................ $ 871,841 61.0%
TEAM-owned......................................... 234,124(a) 16.4
Other franchisees.................................. 323,818 22.6
---------- -------
Total United States............................. $1,429,783 100.0%
---------- =======
International:
BRACC-owned........................................ 91,923 8.5%
Franchisees........................................ 984,368 91.5
---------- -------
Total International............................. $1,076,291 100.0%
---------- =======
Total Budget System........................... $2,506,074
==========
Car sales revenues:
BRACC................................................ $ 91,503
TEAM................................................. 155,433(b)
----------
Total Budget Group.............................. $ 246,936
==========
</TABLE>
<TABLE>
<CAPTION>
AS OF PERCENT OF
DECEMBER 31, 1996 BUDGET SYSTEM
----------------- ----------------
<S> <C> <C>
RENTAL LOCATIONS IN OPERATION:
United States:
BRACC-owned.......................................... 304 31.8%
TEAM-owned........................................... 152 15.9
Other franchisees.................................... 500 52.3
-------- -------
Total United States ............................ 956 100.0%
======== =======
International:
BRACC-owned.......................................... 70 3.1%
Franchisees.......................................... 2,182 96.9
-------- -------
Total International............................. 2,252 100.0%
======== =======
</TABLE>
- ---------------
(a) Pro forma to give effect to the acquisition of VPSI, Inc. ("Van Pool") and
the Phoenix Acquisition (as hereinafter defined) as if such acquisitions had
been consummated on January 1, 1996.
(b) Pro forma to give effect to the ValCar Acquisition (as hereinafter defined)
as if such acquisition had been consummated on January 1, 1996.
7
<PAGE> 8
SUMMARY HISTORICAL FINANCIAL DATA OF THE COMPANY
The following tables set forth summary historical consolidated financial
data of the Company, which have been derived from the Consolidated Financial
Statements of the Company, except for the Rental Data and Retail Car Sales Data.
Information for the six months ended June 30, 1997 includes the operations of
BRACC from April 29, 1997. The information below should be read in conjunction
with the Consolidated Financial Statements of the Company and the notes thereto
included elsewhere in this Prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations of the Company".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------- --------------------------
1994 1995 1996 1996 1997
-------- -------- ---------- ---------- ------------
(IN THOUSANDS EXCEPT PER SHARE AND RENTAL AND RETAIL CAR SALES
DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Operating revenue:
Vehicle rental
revenue(a)........... $ 38,642 $107,067 $ 223,250 $103,842 $ 294,559
Retail car sales
revenue.............. -- 42,662 134,120 55,686 101,592
Royalties and other
revenue.............. -- -- -- -- 12,618
-------- -------- ---------- -------- ----------
Total operating
revenue......... $ 38,642 $149,729 $ 357,370 $159,528 $ 408,769
Depreciation -- vehicle... 7,382 27,476 60,735 28,023(b) 85,217
Operating income.......... 4,196 14,180 35,267 18,096 37,260
Vehicle interest
expense................ 3,909 13,874 25,336 11,963 27,794
Non-vehicle interest
expense (income),
net.................... (139) (716) 838 262 3,478
Income before income
taxes.................. $ 426 $ 1,022 $ 7,818 $ 5,871(b) $ 5,988
Net income................ $ 250 $ 337 $ 4,497 $ 3,523 $ 3,501
Weighted average common
and common equivalent
shares outstanding
(000s):
Primary................ 3,704 6,369 9,488 7,413 16,313
Fully diluted.......... 3,704 6,369 9,488 7,497 16,391
Earnings per common and
common equivalent
share:
Primary................ $ 0.07 $ 0.05 $ 0.47 $ 0.48 $ 0.21
Fully diluted.......... 0.07 0.05 0.47 0.47 0.21
OPERATING DATA:
EBITDA(c)................. $ 12,923 $ 45,204 $ 101,215 $ 49,112 $ 132,626
Adjusted EBITDA(c)........ 1,632 3,854 15,144 9,126 19,615
Net cash provided by
operating activities... 3,660 16,148 54,379 26,618 98,017
Net cash used in investing
activities............. (122,291) (46,298) (62,806) (100,028) (565,626)
Net cash provided by
financing activities... 119,006 29,629 58,560 84,023 685,827
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------- --------------------------
1994 1995 1996 1996 1997
-------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
RENTAL DATA (U.S. UNLESS
NOTED):(d)
Locations in operation at
period end............. 63 133 152 159 476
Number of usable vehicles
at period end(e)....... 5,044 11,143 14,761 17,094 98,100
Rental transactions(f).... 276,000 689,000 1,166,000 551,000 1,610,000
Daily dollar average(g)... $ 37.32 $ 40.75 $ 41.19 $ 42.06 $ 42.31
Vehicle utilization(h).... 80.6% 80.0% 80.9% 80.8% 79.7%
Average monthly revenue
per unit(i)............ $ 909 $ 992 $ 1,017 $ 1,019 $ 1,018
RETAIL CAR SALES DATA:
Locations in operation at
period end............. -- 7 11 9 23
Average monthly vehicles
sold................... -- 351 752 510 1,012
Average monthly sales
revenue (000s)......... $ -- $ 5,177 $ 12,757 $ 9,281 $ 16,932
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Revenue earning vehicles, net............................. $2,340,807
Vehicle inventory (car sales)............................. 29,618
Total assets.............................................. 3,599,975
Fleet financing facilities................................ 2,430,703
Other notes payable....................................... 325,381
Total debt................................................ 2,756,580
Stockholders' equity...................................... 376,626
</TABLE>
- ---------------
(a) Includes revenue from vehicle rentals and related products (such as
supplemental liability insurance and loss damage waivers).
(b) Includes $1.9 million of automobile incentives received in 1995 that
reduced vehicle depreciation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company -- Results of
Operations".
(c) EBITDA consists of income before income taxes plus (i) vehicle interest
expense, (ii) non-vehicle interest expense, (iii) vehicle depreciation
expense and (iv) non-vehicle depreciation and amortization expenses.
Adjusted EBITDA consists of income before income taxes plus (i) non-vehicle
interest expense and (ii) non-vehicle depreciation and amortization
expenses. EBITDA and Adjusted EBITDA are not presented as, and should not
be considered, alternative measures of operating results or cash flows from
operations (as determined in accordance with generally accepted accounting
principles), but are presented because they are widely accepted financial
indicators of a company's ability to incur and service debt.
(d) Does not include data from Van Pool, the Company's van pooling operation.
(e) Represents vehicles available for rent.
(f) Rounded to the nearest thousand.
(g) Represents rental revenue divided by the number of days that vehicles were
actually rented.
(h) Represents the number of days vehicles were actually rented divided by the
number of days vehicles were available for rent.
(i) Represents average monthly revenue divided by average monthly fleet.
9
<PAGE> 10
SUMMARY HISTORICAL FINANCIAL DATA OF BRACC
The following tables set forth summary historical consolidated financial
data for BRACC, which have been derived from the Consolidated Financial
Statements of BRACC. The financial data for all periods presented have been
reclassified to conform to the financial statement presentation of the Company.
The information below should be read in conjunction with the Consolidated
Financial Statements of BRACC and the notes thereto included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of BRACC".
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT RENTAL AND RETAIL CAR SALES DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating revenue:
Vehicle rental
revenue(a).............. $1,011,203 $1,034,873 $ 963,764 $ 221,778 $ 228,135
Retail car sales
revenue................. 77,999 83,795 91,503 22,734 20,913
Other revenue............. 66,564 74,802 77,554 17,259 17,363
---------- ---------- ---------- ---------- ----------
Total operating
revenue............ $1,155,766 $1,193,470 $1,132,821 $ 261,771 $ 266,411
Vehicle depreciation
expense................... 257,356 323,619 263,846 54,583 65,439
Operating income............. 110,075 18,583 124,651 23,543 5,332
Vehicle interest expense..... 86,127 124,758 92,738 22,949 22,589
Non-vehicle interest
expense................... 18,823 25,151 31,444 7,265 7,043
Income (loss) before income
taxes..................... $ 5,125 $ (131,326) $ 469 $ (6,671) $ (24,300)
Net income (loss)............ $ 1,125 $ (132,640) $ (2,531) $ (7,271) $ (19,440)
OPERATING DATA:
EBITDA(b).................... $ 405,715 $ 378,728 $ 432,111 $ 88,813 $ 81,364
Adjusted EBITDA(b)........... 62,232 (69,649) 75,527 11,281 (6,664)
Net cash provided by
operating activities...... 280,793 173,944 256,290 72,826 95,811
Net cash used in investing
activities................ (411,810) (180,938) (205,054) (147,880) (259,409)
Net cash provided by (used
in) financing
activities................ 173,789 35,661 (87,561) 44,288 156,928
RENTAL DATA (U.S. UNLESS
NOTED):
Locations in operation at
period end (worldwide).... 447 390 374 388 374
Number of usable vehicles at
period end(c)............. 75,467 68,148 67,137 69,060 76,284
Rental transactions(d)....... 6,030,000 5,909,000 5,346,000 1,212,000 1,261,000
Daily dollar average(e)...... $ 38.43 $ 39.58 $ 41.26 $ 41.57 $ 40.33
Vehicle utilization(f)....... 77.4% 75.1% 76.7% 76.2% 79.5%
Average monthly revenue per
unit(g)................... $ 904 $ 904 $ 966 $ 960 $ 962
RETAIL CAR SALES DATA:
Locations in operation at
period end................ 8 9 11 9 11
Average monthly vehicles
sold...................... 462 449 491 497 480
Average monthly sales revenue
(000s).................... $ 6,500 $ 6,983 $ 7,625 $ 7,578 $ 6,971
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Revenue earning vehicles, net............................. $ 1,494,755
Vehicle inventory......................................... 14,828
Total assets.............................................. 2,484,152
Fleet financing facilities................................ 1,513,259
Other notes payable....................................... 474,055
Total debt................................................ 1,987,314
Mandatory redeemable preferred stock...................... 5,272
Stockholders' equity...................................... 121,288
</TABLE>
- ---------------
(a) Includes revenue from vehicle rentals and related products (such as
insurance and loss damage waivers).
(b) EBITDA consists of income before income taxes plus (i) vehicle interest
expense, (ii) non-vehicle interest expense, (iii) vehicle depreciation
expense and (iv) non-vehicle depreciation and amortization expenses.
Adjusted EBITDA consists of income before income taxes plus (i) non-vehicle
interest expense and (ii) non-vehicle depreciation and amortization
expenses. EBITDA and Adjusted EBITDA are not presented as, and should not
be considered, alternative measures of operating results or cash flows from
operations (as determined in accordance with generally accepted accounting
principles), but are presented because they are widely accepted financial
indicators of a company's ability to incur and service debt.
(c) Represents vehicles available for rent.
(d) Rounded to the nearest thousand.
(e) Represents rental revenue divided by the number of days that vehicles were
actually rented.
(f) Represents the number of days vehicles were actually rented divided by the
number of days vehicles were available for rent.
(g) Represents average monthly revenue divided by average monthly fleet.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995, with respect to
the financial condition, results of operations and business of the Company,
including statements under the captions "Pro Forma Consolidated Statements of
Operations", "Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company" and "Business". These forward-looking
statements involve certain risks and uncertainties. No assurance can be given
that any of such matters will be realized. Factors that may cause actual results
to differ materially from those contemplated by such forward-looking statements
include, among others, the following: (a) the Company's ability to service its
debt or to obtain financing for its fleet vehicles; (b) management and
integration of the operations of TEAM and BRACC following the Budget Acquisition
and the success of initiatives undertaken by the Company to increase its
revenues and improve its profitability; (c) competitive pressure in the vehicle
rental and retail car sales industries; and (d) general economic conditions. For
further information on other factors which could affect the financial results of
the Company and such forward-looking statements, see "Risk Factors".
11
<PAGE> 12
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.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company has substantial indebtedness and significant debt service
requirements. As of June 30, 1997, the Company's total indebtedness was $2,756.6
million (representing 88.0% of its total capitalization), of which $2,430.7
million represented senior secured indebtedness for the purchase of vehicles and
$325.9 million represented non-vehicle indebtedness (representing 10.4% of its
total capitalization, excluding fleet debt). As of June 30, 1997, the Company
had $241.2 million of incremental availability under its vehicle financing
facilities to finance the purchase of fleet vehicles. The degree to which the
Company is leveraged has important consequences for holders of the Class A
Common Stock, including the following: (i) the ability of the Company to obtain
additional financing in the future, whether for working capital, fleet
purchases, acquisitions or other purposes, may be impaired; (ii) a substantial
portion of the Company's cash flow from operations is required to be dedicated
to the payment of principal and interest on its indebtedness, thereby reducing
funds available to the Company for other purposes; (iii) the Company's
flexibility in planning for or reacting to changes in market conditions may be
limited; (iv) the Company may be more vulnerable in the event of a downturn in
its business; and (v) because a substantial portion of its indebtedness bears
interest at floating rates, any increase in prevailing interest rates will
result in an increase in interest expense incurred by the Company, which could
have an adverse effect on its results of operations. See "Capitalization",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company -- Liquidity and Capital Resources" and "Description
of Certain Indebtedness".
The ability of the Company to meet its debt service obligations will depend
on its future operating performance and financial results, which will be subject
in part to factors beyond the control of the Company. Although management
believes that the Company's cash flow will be adequate to meet its interest and
principal payments, there can be no assurance that the Company will continue to
generate earnings in the future sufficient to cover its fixed charges. If the
Company is unable to generate earnings in the future sufficient to cover its
fixed charges and is unable to borrow sufficient funds under its existing credit
lines or from other sources, it may be required to refinance all or a portion of
its existing indebtedness or to sell all or a portion of its assets. There can
be no assurance that a refinancing would be possible, nor can there be any
assurance as to the timing of any asset sales or the proceeds which the Company
could realize therefrom. In addition, the terms of certain indebtedness of the
Company restrict the ability of the Company to sell assets and the use of the
proceeds therefrom. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company -- Liquidity and Capital
Resources".
If for any reason, including a shortfall in anticipated operating results
or proceeds from asset sales, the Company were unable to meet its debt service
obligations, it would be in default under the terms of its indebtedness. In the
event of such a default, the holders of such indebtedness could elect to declare
all such indebtedness immediately due and payable, including accrued and unpaid
interest, and to terminate their commitments (if any) with respect to funding
obligations under such indebtedness. In addition, such holders could proceed
against their collateral, which, in the case of the fleet financing facilities,
consists of substantially all the Company's fleet. Any default with respect to
any of the Company's indebtedness could result in a default under other
indebtedness or result in a bankruptcy of the Company.
AVAILABILITY OF FINANCING
The Company depends upon third-party financing to purchase its fleet
vehicles. Continued availability of such financing on favorable terms will be
critical to the Company's operations. As of June 30, 1997, 66.0% of the
Company's indebtedness was incurred in connection with major vehicle
manufacturers' vehicle repurchase programs. As a result, a significant change in
the credit quality of the vehicle
12
<PAGE> 13
manufacturers, particularly Ford, would significantly affect the Company's
ability to obtain such financing on favorable terms. In addition, certain
events, such as a material increase in damage to vehicles, could reduce the
value of the collateral securing the Company's fleet financing facilities and
cause the acceleration of the repayment of such facilities. An inability of the
Company to obtain vehicle financing on favorable terms would have a material
adverse effect on the Company's financial condition and results of operations.
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 that
such financing will be available on terms acceptable to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company -- Liquidity and Capital Resources".
INTEGRATION OF BUDGET ACQUISITION
The Budget Acquisition was significantly larger than any of TEAM's previous
acquisitions and the combination and integration of the respective operations of
TEAM and BRACC are of a substantially greater scale than previously undertaken
by either company. The difficulties of managing such combination and integration
are increased by the necessity of coordinating the operations of geographically
diverse organizations, of integrating different strategies and operating
systems, of integrating management and operating personnel from both companies
and of managing a worldwide franchise system. The success of the Company
following the Budget Acquisition depends on the ability of the Company's
management team to: (a) manage a significantly larger organization, (b) maintain
and further develop relationships with Budget franchisees and (c) conduct
operations on a worldwide basis. There can be no assurance that the Company's
management team will be able to successfully manage the combined operations of
TEAM and BRACC. An inability to successfully manage the integration of TEAM and
BRACC would have a material adverse effect on the Company's results of
operations and financial condition.
ABILITY TO IMPLEMENT GROWTH STRATEGY
Management is undertaking initiatives to increase the Company's revenues
and improve its profitability by, among other things, acquiring the operations
of certain franchisees, enhancing its operations outside the United States,
expanding its retail car sales operations, adding car rental locations in its
existing markets, adding truck rental locations and expanding its truck rental
fleet, and increasing its marketing efforts to corporate accounts. In addition,
management expects the Company to realize certain cost savings and other
operating efficiencies as a result of the implementation of its business
strategy. Increasing the revenues of the Company, and realizing cost savings and
other operating efficiencies, could be affected by a number of factors beyond
the Company's control, such as general economic conditions, increased operating
costs, competitive conditions in the vehicle rental industry, levels of air
travel, fuel shortages, increased costs of vehicles and regulatory developments.
See "Business -- Strategy". Each of these initiatives will involve risks to the
Company, and there can be no assurance that the Company will be successful in
growing its business or that the Company will achieve the expected cost savings
and other operating efficiencies. In addition, the Company's substantial
leverage could affect its success in growing its business. See "-- Substantial
Leverage; Ability to Service Debt".
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. Budget's main competitors in the car rental market are The
Hertz Corporation ("Hertz"), Avis, Inc. ("Avis"), Alamo Rent-A-Car, Inc.
("Alamo"), National Car Rental System, Inc. ("National") and Enterprise
Rent-A-Car Company ("Enterprise"). In consumer truck rentals, Budget faces
competition primarily from U-Haul International, Inc. ("U-Haul"), Ryder TRS,
Inc. ("Ryder") and Penske Truck Rental ("Penske"). 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 will not generally be able to unilaterally raise
its prices or to maintain its prices in times of industry-wide price cutting.
See "Business -- Competition".
13
<PAGE> 14
The retail car sales industry also is characterized by intense competition,
consisting primarily of local new car dealerships selling new and late model
cars. In addition to local dealerships, the Company may face competition from
retailers such as CarMax and AutoNation that compete on the basis of large
inventory size, no-haggle pricing and after-sale service.
RESTRICTIONS IMPOSED BY INDEBTEDNESS
The terms of the Company's indebtedness include a number of significant
covenants that, among other things, restrict the ability of the Company to
dispose of assets, incur additional indebtedness, create liens, repay other
indebtedness, pay dividends, make certain investments or acquisitions,
repurchase or redeem capital stock, engage in mergers or consolidations, or
engage in certain transactions with affiliates, and otherwise restrict corporate
activities. There can be no assurance that such restrictions will not adversely
affect the Company's ability to finance its future operations or capital needs
or to engage in other business activities that may be in the interest of the
Company. In addition, the terms of certain of such indebtedness also require the
Company to comply with certain financial tests. The ability of the Company to
comply with such covenants may be affected by events beyond the Company's
control. A breach of any of these covenants or the inability of the Company to
comply with the required financial ratios could result in a default under such
indebtedness. In the event of any such default, the lenders under such
indebtedness could elect to declare all borrowings outstanding under such
indebtedness, together with accrued interest and other fees, to be due and
payable, to require the Company to apply all of its available cash to repay such
borrowings or to prevent the Company from making scheduled debt service
payments. If the Company were unable to repay any such borrowings when due, the
lenders could proceed against their collateral. If the indebtedness of the
Company under such collateralized indebtedness or other indebtedness were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay such indebtedness in full. There can be no assurance that
the Company will be able to comply with the covenants included in its debt
agreements in the future or that it would be able to obtain any necessary
waivers of those covenants. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company -- Liquidity and
Capital Resources" and "Description of Certain Indebtedness".
POTENTIAL CHANGES IN MANUFACTURERS' REPURCHASE PROGRAMS
Approximately 89% of the vehicles purchased by TEAM and approximately 85%
of the vehicles purchased by BRACC in model year 1997 were eligible for
repurchase by specified automobile manufacturers at fixed prices on designated
dates pursuant to such manufacturers' vehicle repurchase programs ("Program
Vehicles"). The availability of Program Vehicles limits a car rental company's
risk of a decline in residual value at the time of disposition and enables it to
fix its depreciation expense in advance. Vehicle depreciation is the largest
cost factor in the Company's vehicle rental operations. Management 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
quarter of 1995, and this weakness continued through 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 have continued for 1997 model
year vehicles. However, the Company could be adversely affected if automobile
manufacturers reduce the availability of Program Vehicles, related incentives or
increase the guaranteed depreciation. See "The Budget Acquisition -- Related
Agreements -- Supply Agreement".
SEASONALITY
The third quarter, during the peak summer travel months, has historically
been the strongest quarter of the year for both TEAM and BRACC. As a result, any
occurrence that disrupts travel patterns during
14
<PAGE> 15
the summer period could have a material adverse effect on the Company's annual
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company -- Seasonality".
COSTS OF REGULATORY AND ENVIRONMENTAL COMPLIANCE
The Company is subject to various foreign, federal, state and local laws
and regulations that affect the conduct of its operations, including those
relating to the sale of loss damage waivers, vicarious liability of vehicle
owners, consumer protection, advertising, used vehicle sales, the taxing and
licensing of vehicles, franchising operations and sales, and environmental
compliance and remediation. There can be no assurance that compliance with these
laws and regulations or the adoption of modified or additional laws and
regulations will not require material expenditures by the Company or otherwise
have a material adverse effect on its results of operations or financial
condition. See "Business -- Regulatory and Environmental Matters".
DEPENDENCE ON PRINCIPAL SUPPLIER
For many years, Ford has been BRACC's principal supplier of vehicles. The
number of vehicles purchased from Ford has varied from year to year. In model
year 1997, approximately 73% of BRACC's U.S. vehicle purchases were comprised of
Ford vehicles. Under the terms of the supply agreement that was entered into
concurrently with the Budget Acquisition, the Company agreed to purchase or
lease Ford vehicles in such quantity that the percentage of new Ford vehicles
purchased or leased by the Company in the United States, Canada, and other
countries outside the European Union represents at least 70% of the total new
vehicle acquisitions by the Company, with a minimum quantity of at least 80,000
vehicles in the United States in each model year. See "The Budget
Acquisition -- Related Agreements -- Supply Agreement". Given the volume of
vehicles purchased from Ford by the Company, shifting significant portions of
the fleet purchases to other manufacturers would require lead time and certain
operational changes. As a result, any inability of Ford to supply the Company
with the planned number and types of vehicles, any significant decline in the
quality and customer satisfaction with respect to Ford vehicles or any failure
of the parties to reach an agreement on the terms of any purchases, could have a
material adverse effect on the Company's financial condition and results of
operations.
RISKS OF INTERNATIONAL OPERATIONS
For 1996, on a pro forma basis, 8.9% of the Company's revenues were derived
from its international operations. The Company's international vehicle rental
operations are subject to certain risks, including adverse developments in the
foreign political and economic environment, varying governmental regulations,
foreign currency fluctuations, potential difficulties in staffing and managing
foreign operations and potential adverse tax consequences. There can be no
assurance that any of these factors will not have a material adverse effect on
the Company's results of operations or financial condition.
DEPENDENCE ON PRINCIPAL EXECUTIVE OFFICERS
The Company's existing operations and continued future development are
dependent in part on the active participation of Messrs. Miller, Kennedy and
Congdon. The loss of the services of one or more of these individuals could have
a material adverse effect on the Company. The Company has no employment
agreements or covenants not to compete with any of its executive officers or
significant employees. See "Management".
SHARES ELIGIBLE FOR FUTURE SALE
A substantial number of shares of Class A Common Stock currently
outstanding, or issuable upon conversion of the Company's outstanding
Convertible Notes, or upon exercise of stock options and stock purchase
warrants, are or will become eligible for future sale in the public market at
prescribed times pursuant to registration rights of certain security holders or
applicable regulations. The Company has
15
<PAGE> 16
agreed, promptly following completion of the Offering, to file a shelf
registration statement relating to the 5,595,491 shares of Class A Common Stock
issuable upon conversion of the outstanding Convertible Notes. The Company's
directors and executive officers, who in the aggregate beneficially own
2,707,755 shares of Common Stock, have agreed that for a period of 90 days after
the date of this Prospectus, and the Company has 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 Goldman,
Sachs & Co. In addition, during such 90 day period the Company may issue up to
500,000 shares of Class A Common Stock in connection with acquisitions. The
recipients of such shares will be subject to restrictions on disposition similar
to those imposed by the Representatives (as hereinafter defined) on the Company
and its directors and executive officers. See "Underwriting". 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".
SUBSTANTIAL VOTING POWER BY PRINCIPAL EXECUTIVE OFFICERS
The Company has two classes of Common Stock: Class A Common Stock, holders
of which are entitled to one vote per share, and Class B Common Stock, holders
of which are entitled to ten votes per share. Messrs. Miller, Kennedy and
Congdon own all outstanding shares of Class B Common Stock, which, following the
Offering, together with the Class A Common Stock owned by such individuals, will
represent approximately 49.5% of the combined voting power of both classes of
Common Stock. As a result, such officers will be able to exert substantial
influence over the election of the Company's Board of Directors, thereby
increasing the probability 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".
16
<PAGE> 17
USE OF PROCEEDS
The Company will receive proceeds from the Offering only upon the exercise
of the over-allotment option granted by the Company. See "Underwriting". If the
over-allotment option granted by the Company is exercised, the Company will use
the net proceeds from its sale of shares for working capital purposes.
PRICE RANGE OF COMMON STOCK
The Class A Common Stock has been listed on the NYSE under the symbol "BD"
since April 17, 1997. From the time of the Company's initial public offering on
August 25, 1994 through April 16, 1997, the Class A Common Stock was traded on
The Nasdaq National Market. 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 and the NYSE, as applicable, for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
------- --------
<S> <C> <C>
1995
First Quarter............................................. $ 9.75 $ 8.00
Second Quarter............................................ 9.00 7.25
Third Quarter............................................. 11.75 6.1875
Fourth Quarter............................................ 10.75 8.00
1996
First Quarter............................................. 10.50 8.25
Second Quarter............................................ 17.50 9.25
Third Quarter............................................. 20.25 12.375
Fourth Quarter............................................ 20.25 15.25
1997
First Quarter............................................. 29.50 16.00
Second Quarter............................................ 34.875 19.00
Third Quarter (through September 30, 1997)................ 37.00 28.1875
</TABLE>
On September 30, 1997, the last sale price of the Class A Common Stock as
reported on the NYSE was $33.00 per share. As of September 29, 1997, there were
approximately 93 holders of record of the Class A Common Stock.
DIVIDEND POLICY
Although the Company is currently able to pay dividends, subject to
limitations under the terms of its indebtedness, the Company has never declared
or paid dividends on its Common Stock. It is the current policy of the Board of
Directors of the Company to retain earnings for use in the business and not to
pay any cash dividends on the Common Stock. Any declaration and payment of cash
dividends on the Common Stock will be subject to the discretion of the Company's
Board of Directors and will be dependent upon the Company's financial condition,
results of operations, cash requirements and future prospects, the limitations
under the terms of its indebtedness and other factors deemed relevant by the
Company's Board of Directors. There can be no assurance that any such dividends
will be declared or paid.
17
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 and as adjusted to reflect the conversion of 4,400 shares of the Series
A Convertible Preferred Stock into 4,400,000 shares of Class A Common Stock, the
issuance of 137,500 shares of Class A Common Stock pursuant to the partial
exercise of the NationsBank Warrant and the Offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Company -- Liquidity and Capital Resources".
<TABLE>
<CAPTION>
AT JUNE 30, 1997
---------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Vehicle debt:
Asset-backed notes(a)..................................... $ 1,538,489 $ 1,538,489
Commercial paper.......................................... 812,511 812,511
Other fleet obligations................................... 79,703 79,703
----------- -----------
Total vehicle debt................................ $ 2,430,703 $ 2,430,703
Non-vehicle debt:
9.57% Guaranteed Senior Notes due 2007.................... 165,000 165,000
Convertible Notes......................................... 125,000 125,000
Other notes payable....................................... 35,381 35,381
Capital lease obligations................................. 496 496
----------- -----------
Total non-vehicle debt............................ $ 325,877 $ 325,877
----------- -----------
Total debt...................................... $ 2,756,580 $ 2,756,580
----------- -----------
Stockholders' equity:
Series A Convertible Preferred Stock, $.01 par value,
10,000 shares authorized, 4,500 shares issued and
outstanding; 100 shares issued and outstanding, as
adjusted............................................... 105,750 2,350(b)
Class A Common Stock, $.01 par value, one vote per share,
35,000,000 shares authorized; 17,999,750 shares issued
and 17,963,083 shares outstanding; 22,537,250 shares
issued and 22,500,583 shares outstanding, as
adjusted(c)............................................ 180 225(b)(d)
Class B Common Stock, $.01 par value, ten votes per share,
2,500,000 shares authorized; 1,936,600 shares issued
and outstanding........................................ 19 19
Additional paid-in capital.................................. 265,185 370,035
Pension liability adjustment................................ -- --
Foreign currency translation adjustment..................... (42) (42)
Retained earnings........................................... 5,864 5,864
Treasury stock (at cost).................................... (330) (330)
----------- -----------
Total stockholders' equity........................ $ 376,626 $ 378,121
----------- -----------
Total capitalization............................ $ 3,133,206 $ 3,134,701
=========== ===========
</TABLE>
(footnotes on following page)
18
<PAGE> 19
- ---------------
(a) Consists of the "First Fleet Financing Facility", the "Second Fleet
Financing Facility" and the "Third Fleet Financing Facility" and the "1997
Fleet Financings", as described and defined under "Management's Discussion
and Analysis of Financial Condition and Results of Operations of the
Company -- Liquidity and Capital Resources".
(b) As adjusted to reflect conversion of 4,400 shares of the Series A
Convertible Preferred Stock into 4,400,000 shares of Class A Common Stock,
all of which are being sold in the Offering.
(c) Does not include (i) 3,986,049 shares of Class A Common Stock issuable upon
conversion of the Series A Convertible Notes; (ii) 1,609,442 shares of Class
A Common Stock issuable upon conversion of the Series B Convertible Notes;
(iii) 100,000 shares of Class A Common Stock issuable upon conversion of the
Series A Convertible Preferred Stock issued to Ford in the Budget
Acquisition that will remain outstanding if the Underwriters' over-allotment
option from Ford is not exercised; (iv) 1,913,150 shares of Class A Common
Stock and 164,000 shares of Class B Common Stock issuable pursuant to
options outstanding at June 30, 1997; (v) 50,000 shares of Class A Common
Stock reserved for issuance upon exercise of the NationsBank Warrant that
will remain outstanding if the Underwriters' over-allotment option from
Atlantic Equity Corporation is not exercised; and (vi) 36,667 shares of
Class A Common Stock held as treasury shares. See "Management -- Benefit
Plans" and "Description of Capital Stock -- Warrants".
(d) As adjusted to reflect the issuance of 137,500 shares of Class A Common
Stock pursuant to the partial exercise of the NationsBank Warrant, all of
which shares are being offered in the Offering and which will generate
approximately $1.5 million in proceeds to the Company.
19
<PAGE> 20
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Budget Group, Inc.:
We have examined the pro forma adjustments reflecting the transactions
described in the notes to the pro forma consolidated statement of operations for
the year ended December 31, 1996 and the application of those adjustments to the
historical amounts in the accompanying pro forma consolidated statement of
operations of Budget Group, Inc. for the year ended December 31, 1996. The
historical amounts reflect the historical consolidated statement of operations
of Budget Group, Inc. and subsidiaries (formerly known as Team Rental Group,
Inc.), which was audited by us, and of Budget Rent a Car Corporation and
subsidiaries, which was audited by other accountants, both of which are included
in Budget Group, Inc.'s Registration Statement File No. 333-34799 on Form S-1.
Such pro forma adjustments are based upon management's assumptions described in
the notes to the pro forma consolidated statement of operations for the year
ended December 31, 1996. Our examination was made in accordance with standards
established by the American Institute of Certified Public Accountants and,
accordingly, included such procedures as we considered necessary in the
circumstances.
In addition, we have reviewed the pro forma adjustments reflecting the
transactions described in the notes to the pro forma consolidated statement of
operations for the six months ended June 30, 1997 and the application of those
adjustments to the historical amounts in the accompanying pro forma consolidated
statement of operations of Budget Group, Inc. for the six months ended June 30,
1997. The historical amounts reflect the historical consolidated statement of
operations of Budget Group, Inc. and subsidiaries, which was reviewed by us,
appearing elsewhere herein. Such pro forma adjustments are based upon
management's assumptions as described in the notes to the pro forma consolidated
statement of operations for the six months ended June 30, 1997. Our review was
conducted in accordance with standards established by the American Institute of
Certified Public Accountants.
The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been had
the transactions described in the notes to the pro forma consolidated statements
of operations occurred at an earlier date. However, the pro forma consolidated
statements of operations are not necessarily indicative of the results of
operations that would have been attained had the above-mentioned transactions
actually occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
transactions as described in the notes to the pro forma consolidated statement
of operations for the year ended December 31, 1996, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro forma
columns reflect the proper application of those adjustments to the historical
financial statement amounts in the pro forma consolidated statement of
operations for the year ended December 31, 1996.
A review is substantially less in scope than an examination, the objective
of which is the expression of an opinion on management's assumptions, the pro
forma adjustments and the application of those adjustments to historical
financial information. Accordingly, we do not express such an opinion on the pro
forma adjustments or the application of such adjustments to the pro forma
consolidated statement of operations for the six months ended June 30, 1997.
Based on our review, however, nothing came to our attention that caused us to
believe that management's assumptions do not provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
transactions as described in the notes to the pro forma consolidated statement
of operations for the six months ended June 30, 1997, that the related pro forma
adjustments do not give appropriate effect to those assumptions, or that the pro
forma columns do not reflect the proper application of those adjustments to the
historical financial statement amounts in the pro forma consolidated statement
of operations for the six months ended June 30, 1997.
ARTHUR ANDERSEN LLP
Orlando, Florida
September 4, 1997
20
<PAGE> 21
INTRODUCTION
The following unaudited Pro Forma Consolidated Statements of Operations are
based on the historical financial statements of the Company for the year ended
December 31, 1996 and the six months ended June 30, 1997 and of BRACC for the
year ended December 31, 1996 and the period through April 29, 1997, adjusted to
give effect to the transactions described below. The pro forma consolidated
statements of operations for the year ended December 31, 1996 give effect to the
following transactions as if they had occurred on January 1, 1996: (i) certain
transactions effected by TEAM during 1996 that are more fully described below
(the "1996 TEAM Transactions") and (ii) the Budget Acquisition and certain
related transactions that are more fully described below (the "Budget
Acquisition Transactions" and, together with the 1996 TEAM Transactions, the
"Transactions"). The pro forma consolidated statements of operations for June
30, 1997 give effect to the Budget Acquisition Transactions as if they had
occurred on January 1, 1997.
The 1996 TEAM Transactions consist of the following: (i) TEAM's acquisition
of Van Pool, which was effective on February 1, 1996, TEAM's acquisition of the
Phoenix Budget franchise (the "Phoenix Acquisition"), which was effective on
March 1, 1996, and TEAM's acquisition of ValCar Rental Car Sales, Inc.
("ValCar"), which was effective on August 1, 1996 (the "ValCar Acquisition");
(ii) the sale of 3,821,007 shares of Class A Common Stock by TEAM in a public
offering in July 1996 (the "July 1996 Public Offering"); (iii) the partial
refinancing of TEAM's vehicle rental fleet in December 1996 through the $176.0
million aggregate principal amount Third Fleet Financing Facility; (iv) the
private placement of $80.0 million aggregate principal amount of Series A
Convertible Notes in December 1996; and (v) the repayment of certain of TEAM's
outstanding indebtedness from the proceeds of (ii), (iii) and (iv) above. The
Budget Acquisition Transactions consist of the following: (i) the Budget
Acquisition, including the repayment, purchase and forgiveness of certain
indebtedness and the necessary purchase accounting and elimination entries; (ii)
the sale of 8,625,000 shares of Class A Common Stock by TEAM in a public
offering in April 1997 (the "April 1997 Public Offering") and the application of
the net proceeds thereof; (iii) the private placement (the "Debt Placements") of
$45,000,000 aggregate principal amount of Convertible Notes and $165,000,000
aggregate principal amount of 9.57% Guaranteed Senior Notes due 2007 (the
"Guaranteed Senior Notes") and the application of the net proceeds thereof; and
(iv) the April 1997 credit facilities for fleet financings (the "April 1997
Fleet Financings") with an aggregate commitment of $1.4 billion and the
application of the net proceeds thereof and the repayment of certain of BRACC's
outstanding indebtedness to Ford from the net proceeds thereof. All
acquisitions, including the Budget Acquisition, have been accounted for using
the purchase method of accounting.
The Pro Forma Consolidated Statements of Operations do not purport to
represent what the Company's results of operations would have been had the
Transactions actually occurred on the dates indicated or to predict the
Company's results of operations in the future. These statements are qualified in
their entirety by, and should be read in conjunction with, the historical
financial statements of the Company and BRACC and the notes thereto included
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
BRACC".
The Pro Forma Consolidated Statements of Operations have been prepared
using the purchase method of accounting, whereby the total cost of the Budget
Acquisition has been allocated to the tangible and intangible assets acquired
and liabilities assumed based upon their respective fair values at the effective
date of the Budget Acquisition.
The Pro Forma Consolidated Statements of Operations give effect only to the
adjustments set forth in the accompanying notes and do not reflect any other
benefits anticipated by management as a result of the Budget Acquisition
Transactions and the implementation of its business strategy or the possible
effects of the Supply Agreement and Advertising Agreement (as defined).
21
<PAGE> 22
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
ADJUSTMENTS FOR PRO FORMA FOR BUDGET PRO FORMA
HISTORICAL 1996 TEAM HISTORICAL HISTORICAL ACQUISITION BUDGET
TEAM TRANSACTIONS(A) TEAM BRACC TRANSACTIONS GROUP
---------- --------------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenue:
Vehicle rental revenue.......... $223,250 $10,874 $234,124 $ 963,764 $ -- $1,197,888
Royalty fees.................... -- -- -- 60,352 (7,641)(k) 52,711
Retail car sales revenue........ 134,120 21,313 155,433 91,503 -- 246,936
Other........................... -- -- -- 17,202 (2,509)(k) 14,693
-------- ------- -------- ---------- -------- ----------
Total operating revenue... $357,370 $32,187 $389,557 $1,132,821 $(10,150) $1,512,228
Operating costs and expenses:
Direct vehicle and operating.... 35,098 2,372 37,470 121,288 (6,719)(k) 152,039
Depreciation -- vehicle......... 60,735 2,855 63,590 263,846 -- 327,436
Depreciation -- non-vehicle..... 2,589 343 2,932 26,645 -- 29,577
Cost of car sales............... 113,747 19,639 133,386 78,944 -- 212,330
Advertising, promotion and
selling....................... 22,983 915 23,898 83,304 (2,509)(k) 104,693
Facilities...................... 20,406 871 21,277 114,325 -- 135,602
Personnel....................... 53,097 1,955(b) 55,052 248,655 -- 303,707
General and administrative...... 11,605 3,968(c) 15,573 54,194 -- 69,767
Amortization.................... 1,843 90(d) 1,933 16,969 (6,385)(l) 12,517
-------- ------- -------- ---------- -------- ----------
Total operating costs and
expenses................ $322,103 $33,008 $355,111 $1,008,170 $(15,613) $1,347,668
-------- ------- -------- ---------- -------- ----------
Operating income (loss)........... $ 35,267 $ (821) $ 34,446 $ 124,651 $ 5,463 $ 164,560
-------- ------- -------- ---------- -------- ----------
Other (income) expense:
Vehicle interest expense........ 25,336 (4,419)(e) 20,917 92,738 (6,734)(m)(n) 106,921
Non-vehicle interest expense.... 1,501 4,292(f) 5,793 31,444 (10,308)(o)(p) 26,929
Interest income -- restricted
cash.......................... (781) (929)(g) (1,710) -- (108)(q) (1,818)
Non-recurring bank fees......... 1,275 (1,275)(h) -- -- -- --
Related party interest.......... 118 (118)(i) -- -- -- --
-------- ------- -------- ---------- -------- ----------
Total other (income)
expense................. $ 27,449 $(2,449) $ 25,000 $ 124,182 $(17,150) $ 132,032
Income before income taxes........ 7,818 1,628 9,446 469 22,613 32,528
Provision for income taxes...... 3,321 651(j) 3,972 3,000 4,652(r) 11,624
-------- ------- -------- ---------- -------- ----------
Net income (loss)......... $ 4,497 $ 977 $ 5,474 $ (2,531) $ 17,961 $ 20,904
======== ======= ======== ========== ======== ==========
Weighted average common and common
equivalent shares outstanding:
Primary......................... 9,488 11,515 24,579
==========
Fully diluted................... 9,552 11,578 28,618
==========
Earnings per common and common
equivalent share:
Primary......................... $ 0.47 $ 0.48 $ 0.85(s)
==========
Fully diluted................... 0.47 0.47 0.85
==========
</TABLE>
22
<PAGE> 23
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
Adjustments for 1996 TEAM Transactions:
(a) Reflects the inclusion of the operations of Van Pool, the Phoenix Budget
franchise, and ValCar from January 1, 1996, to their respective dates of
acquisition by TEAM of February 1, March 1, and August 1, 1996,
respectively, as reflected in the table below.
<TABLE>
<CAPTION>
VAN POOL PHOENIX VALCAR TOTAL
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenue:
Vehicle rental revenue........................... $2,660 $8,214 -- $10,874
Retail car sales revenue......................... -- -- $21,313 21,313
------ ------ ------- -------
Total operating revenues.................... $2,660 $8,214 $21,313 $32,187
------ ------ ------- -------
Operating costs and expenses:
Direct vehicle and operating..................... 893 1,479 -- 2,372
Depreciation -- vehicle.......................... 676 2,179 -- 2,855
Depreciation -- non-vehicle...................... 8 229 106 343
Cost of car sales................................ -- -- 19,639 19,639
Advertising, promotion and selling............... -- 915 -- 915
Facilities....................................... 33 838 -- 871
Personnel........................................ 379 1,913 -- 2,292
General and administrative....................... 148 436 3,421 4,005
Amortization of franchise rights................. -- 8 -- 8
------ ------ ------- -------
Total operating costs and expenses.......... $2,137 $7,997 $23,166 $33,300
------ ------ ------- -------
Operating income (loss)............................ 523 217 (1,853) (1,113)
Other (income) expense:
Vehicle interest expense......................... 232 991 318 1,541
Non-vehicle interest expense (income), net....... (21) 2 -- (19)
------ ------ ------- -------
Total other expense......................... $ 211 $ 993 $ 318 $ 1,522
Income (loss) before taxes......................... 312 (776) (2,171) (2,635)
Provision (benefit) for income taxes............. 125 (310) (869) (1,054)
------ ------ ------- -------
Net income (loss).................................. $ 187 $ (466) $(1,302) $(1,581)
====== ====== ======= =======
</TABLE>
(b) Reflects the net increase in personnel expense of $1,955 attributable to:
<TABLE>
<S> <C>
Operations of purchased businesses as reflected in note
(a).................................................... $2,292
Reduction relating to salaries and bonuses previously
paid to officers of the
Phoenix Budget franchise.............................. (312)
Reduction resulting from the elimination of a retirement
plan................................................... (25)
------
Net increase in personnel expense.................. $1,955
======
</TABLE>
(c) Reflects the net increase in general and administrative expense of $3,968
attributable to:
<TABLE>
<S> <C>
Operations of purchased businesses as reflected in note
(a).................................................... $ 4,005
Elimination of management fees paid to former
shareholders of ValCar................................. (108)
Royalty payments made by ValCar to BRACC for the right
to use the "Budget" trade name for its retail car sales
facilities during the preacquisition period............ 71
-------
Net increase in general and administrative
expense........................................... $ 3,968
=======
</TABLE>
(d) Reflects the net increase in amortization expense of $90 attributable to:
<TABLE>
<S> <C>
Operations of purchased businesses as reflected in note
(a).................................................... $ 8
Amortization of franchise rights resulting from the
Phoenix Acquisition.................................... 60
Amortization of franchise rights resulting from the
ValCar Acquisition..................................... 22
-------
Net increase in amortization expense............... $ 90
=======
</TABLE>
23
<PAGE> 24
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 -- (CONTINUED)
(IN THOUSANDS)
(e) Reflects the net decrease in vehicle interest expense of $4,419
attributable to:
<TABLE>
<S> <C>
Operations of purchased businesses as reflected in note
(a).................................................... $ 1,541
Amortization of costs incurred in connection with the
Third Fleet Financing Facility......................... 260
Interest savings due to the refinancing of debt at
reduced interest rates under the Third Fleet Financing
Facility............................................... (6,220)
-------
Net decrease in vehicle interest expense........... $(4,419)
=======
</TABLE>
(f) Reflects the net increase in non-vehicle interest expense of $4,292
attributable to:
<TABLE>
<S> <C>
Operations of purchased businesses as reflected in note
(a).................................................... $ (19)
Interest expense that would have been incurred on
borrowings of $15.0 million to effect the Phoenix
Acquisition............................................ 217
Interest expense incurred on the Series A Convertible
Notes.................................................. 3,901
Amortization of costs incurred in connection with the
issuance of Series A Convertible Notes................. 193
-------
Net increase in non-vehicle interest expense....... $ 4,292
=======
</TABLE>
Because the Series A Convertible Notes are unsecured indebtedness, the
entire interest expense is included in non-vehicle interest expense, even
though a portion of the proceeds have been used to fund the fleet. Based on
the average fleet debt outstanding during the period that could have been
funded by the Series A Convertible Notes, approximately $3,000 of the
interest cost incurred is attributable to funding the fleet.
(g) Reflects the $929 increase in interest income -- restricted cash earned on
restricted cash balances remaining in TEAM's restricted cash account after
application of the proceeds received from the Third Fleet Financing
Facility, the Series A Convertible Notes and the July 1996 Public Offering
to TEAM's outstanding indebtedness. Under the terms of the Third Fleet
Financing Facility, specified amounts of cash are required to be maintained
in a restricted cash account, with such amounts earning interest at a rate
of 4.5% per annum.
(h) Reflects the elimination of $1,275 in non-recurring financing fees related
to bridge loans that were repaid with the proceeds of the July 1996 Public
Offering and that would not have been incurred on a pro forma basis.
(i) Reflects the elimination of $118 of related party interest due to repayment
of the related party debt.
(j) Reflects the tax effect of the pro forma adjustments, based on an effective
tax rate of approximately 40%.
Adjustments for Budget Acquisition Transactions:
(k) Reflects the elimination of the following transactions between TEAM and
BRACC:
<TABLE>
<S> <C>
Advertising fees paid by TEAM which were recognized as
other revenue by BRACC................................. $2,509
Royalty expenses paid by TEAM which were recognized as
royalty fees by BRACC.................................. 6,241
</TABLE>
Also reflects the elimination of the current year effect of $1,400 royalty
fees recognized by BRACC and $478 royalty expense recognized by TEAM
related to the warrant to purchase shares of Class A Common Stock of TEAM
held by BRACC (the "BRACC Warrant"). The BRACC Warrant was issued by TEAM
in August 1994 and, following the Budget Acquisition, is no longer
outstanding.
(l) Reflects the elimination of $16,969 of amortization of BRACC's existing
goodwill and records an increase of $10,584 amortization on the net
goodwill and other intangible assets recorded through purchase accounting
adjustments.
24
<PAGE> 25
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 -- (CONTINUED)
(IN THOUSANDS)
(m) Reflects the increase in vehicle interest expense attributable to:
<TABLE>
<S> <C>
Interest expense related to the April 1997 Fleet
Financings............................................. $54,641
Amortization of costs incurred in connection with
certain of the April 1997 Fleet Financings............. 1,169
-------
Increase in vehicle interest expense............... $55,810
=======
</TABLE>
(n) Reflects the decrease in vehicle interest expense attributable to:
<TABLE>
<S> <C>
Interest savings on vehicle debt refinanced through the
April 1997 Fleet Financings............................ $54,532
Interest savings on vehicle debt to Ford paid down by
BRACC in connection with
the Budget Acquisition................................ 8,012
-------
Decrease in vehicle interest expense............... $62,544
=======
</TABLE>
(o) Reflects the increase in non-vehicle interest expense attributable to:
<TABLE>
<S> <C>
Interest expense related to the Debt Placements......... $18,873
Amortization of costs incurred in connection with
certain of the April 1997 Fleet Financings and the Debt
Placements............................................. 1,481
-------
Increase in non-vehicle interest expense........... $20,354
=======
</TABLE>
(p) Reflects the decrease in non-vehicle interest expense attributable to:
<TABLE>
<S> <C>
Elimination of interest on BRACC indebtedness to Ford
purchased by TEAM through the issuance of Series A
Convertible Preferred Stock............................... $ 7,634
Elimination of interest on working capital debt of $134,136
forgiven by Ford.......................................... 10,330
Elimination of interest on BRACC indebtedness to Ford paid
down by BRACC using the proceeds from BRACC's sale of
newly issued common stock to TEAM......................... 12,698
-------
Decrease in non-vehicle interest expense................ $30,662
=======
</TABLE>
(q) Reflects $108 of interest income - restricted cash on the $2,400 increase
in restricted cash resulting from the receipt of Ford's funding of the
special bonus program implemented in connection with the Budget
Acquisition. See "The Budget Acquisition - Terms of the Stock Purchase
Agreements -- Special Bonus Program".
(r) Reflects a tax provision attributable to the combined group on a pro forma
basis.
(s) Unaudited pro forma earnings per common and common equivalent share data
for Budget Group are calculated using 24,578,786 shares of Common Stock,
which include the 4,500,000 shares of Class A Common Stock into which
Ford's outstanding Series A Convertible Preferred Stock is convertible
(4,400,000 shares of which are being offered hereby).
25
<PAGE> 26
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL HISTORICAL BRACC FOR BUDGET PRO FORMA
BUDGET THROUGH ACQUISITION BUDGET
GROUP BUDGET ACQUISITION(A) TRANSACTIONS GROUP
---------- --------------------- ------------ ---------
<S> <C> <C> <C> <C>
Operating revenue:
Vehicle rental revenue.............. $294,559 $311,945 $ -- $606,504
Royalty fees........................ 12,618 18,433 (2,439)(b) 28,612
Retail car sales revenue............ 101,592 29,146 -- 130,738
Other............................... -- 4,699 (1,217)(b) 3,482
-------- -------- ------- --------
Total operating revenue...... $408,769 $364,223 $(3,656) $769,336
Operating costs and expenses:
Direct vehicle and operating........ 38,402 43,112 (2,439)(b) 79,075
Depreciation -- vehicle............. 85,217 89,019 -- 174,236
Depreciation -- non-vehicle......... 5,361 8,592 -- 13,953
Cost of car sales................... 86,068 25,691 -- 111,759
Advertising, promotion and
selling........................... 35,050 37,844 (1,217)(b) 71,677
Facilities.......................... 30,326 38,937 -- 69,263
Personnel........................... 71,403 86,916 -- 158,319
General and administrative.......... 16,707 20,712 -- 37,419
Amortization........................ 2,975 5,824 (2,328)(c) 6,471
-------- -------- ------- --------
Total operating costs and
expenses................... $371,509 $356,647 $(5,984) $722,172
-------- -------- ------- --------
Operating income...................... $ 37,260 $ 7,576 $ 2,328 $ 47,164
-------- -------- ------- --------
Other (income) expense:
Vehicle interest expense............ 27,794 30,346 (1,245)(d)(e) 56,895
Non-vehicle interest expense........ 5,290 10,576 (4,067)(f)(g) 11,799
Interest income -- restricted
cash.............................. (1,812) -- (36)(h) (1,848)
-------- -------- ------- --------
Total other (income)
expense.................... $ 31,272 $ 40,922 $(5,348) $ 66,846
-------- -------- ------- --------
Income (loss) before income taxes..... 5,988 (33,346) 7,676 (19,682)
Provision (benefit) for income
taxes............................. 2,487 (6,669) (4,764)(i) (8,946)
-------- -------- ------- --------
Net income (loss)............ $ 3,501 $(26,677) $12,440 $(10,736)
======== ======== ======= ========
Weighted average common and common
equivalent shares outstanding:
Primary............................. 16,313 24,982
========
Earnings (loss) per common and common
equivalent share:
Primary............................. $ 0.21 $ (0.43)(j)
========
</TABLE>
26
<PAGE> 27
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
(a) Reflects the inclusion of the operations of BRACC from January 1, 1997 to
April 29, 1997, the date of the acquisition of BRACC by the Company.
(b) Reflects the elimination of the following transactions between TEAM and
BRACC:
<TABLE>
<S> <C>
Advertising fees paid by TEAM which were recognized as
other revenue by BRACC................................ $1,217
Royalty expenses paid by TEAM which were recognized as
royalty fees by BRACC................................. 1,700
</TABLE>
Also reflects the elimination of the current period effect of $739 royalty
fees recognized by BRACC and $739 royalty expense recognized by TEAM
related to the BRACC Warrant.
(c) Reflects the elimination of $5,824 of amortization of BRACC's existing
goodwill and records an increase of $3,496 amortization on the net goodwill
and other intangible assets recorded through purchase accounting
adjustments.
(d) Reflects the increase in vehicle interest expense attributable to:
<TABLE>
<S> <C>
Interest expense related to the April 1997 Fleet
Financings............................................ $17,899
Amortization of costs incurred in connection with
certain of the April 1997 Fleet Financings............ 384
-------
Increase in vehicle interest expense.............. $18,283
=======
</TABLE>
(e) Reflects the decrease in vehicle interest expense attributable to:
<TABLE>
<S> <C>
Interest savings on vehicle debt refinanced through the
April 1997 Fleet Financings........................... $17,696
Interest savings on vehicle debt to Ford paid down by
BRACC in connection with the Budget Acquisition....... 1,832
-------
Decrease in vehicle interest expense.............. $19,528
=======
</TABLE>
(f) Reflects the increase in non-vehicle interest expense attributable to:
<TABLE>
<S> <C>
Interest expense related to the Debt Placements........ $ 6,205
Amortization of costs incurred in connection with
certain of the April 1997 Fleet Financings and the
Debt Placements....................................... 487
-------
Increase in non-vehicle interest expense.......... $ 6,692
=======
</TABLE>
(g) Reflects the decrease in non-vehicle interest expense attributable to:
<TABLE>
<S> <C>
Elimination of interest on BRACC indebtedness to Ford
purchased by TEAM through the issuance of Series A
Convertible Preferred Stock............................... $ 2,478
Elimination of interest on working capital debt of $134,136
forgiven by Ford.......................................... 3,353
Elimination of interest on BRACC indebtedness to Ford paid
down by BRACC using the proceeds from BRACC's sale of
newly issued common stock to TEAM......................... 4,928
-------
Decrease in non-vehicle interest expense............... $10,759
=======
</TABLE>
(h) Reflects $36 of interest income -- restricted cash on the $2,400 increase
in restricted cash resulting from the receipt of Ford's funding of the
special bonus program implemented in
27
<PAGE> 28
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 -- (CONTINUED)
(IN THOUSANDS)
connection with the Budget Acquisition. See "The Budget
Acquisition -- Terms of the Stock Purchase Agreements -- Special Bonus
Program".
(i) Reflects a tax provision attributable to the combined group on a pro forma
basis.
(j) Unaudited pro forma earnings per common and common equivalent share data
for Budget Group are calculated using 24,982,240 shares of Common Stock,
which include the 4,500,000 shares of Class A Common Stock into which
Ford's outstanding Series A Convertible Preferred Stock is convertible
(4,400,000 shares of which are being offered hereby).
28
<PAGE> 29
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
The following table sets forth selected consolidated statement of
operations data and selected consolidated balance sheet data of the Company. The
selected financial data for each of the five years ended December 31, 1996 are
derived from the consolidated financial statements of the Company. The data
presented for each of the six months ended June 30, 1996 and 1997 are derived
from unaudited financial statements, but in the opinion of the Company reflect
all adjustments (consisting of normal recurring adjustments) that the Company
considers necessary for a fair presentation of such information in accordance
with generally accepted accounting principles. Information for the six months
ended June 30, 1997 includes the operations of BRACC from April 29, 1997. The
selected financial data below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Company" and the Consolidated Financial Statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Operating revenue:
Vehicle rental
revenue(a)........... $21,968 $22,321 $38,642 $107,067 $223,250 $103,842 $294,559
Retail car sales
revenue.............. -- -- -- 42,662 134,120 55,686 101,592
Royalties and other
revenue.............. -- -- -- -- -- -- 12,618
------- ------- ------- -------- -------- -------- --------
Total operating
revenue....... $21,968 $22,321 $38,642 $149,729 $357,370 $159,528 $408,769
------- ------- ------- -------- -------- -------- --------
Operating expenses:
Direct vehicle and
operating............ 5,989 5,452 9,439 13,704 35,098 12,742 38,402
Depreciation -- vehicle... 2,832 4,358 7,382 27,476 60,735 28,023(b) 85,217
Depreciation -- non-
vehicle.............. 212 229 446 1,341 2,589 1,210 5,361
Cost of car sales...... -- -- -- 38,021 113,747 47,295 86,068
Advertising, promotion
and selling.......... 1,477 1,658 3,090 11,826 22,983 10,609 35,050
Facilities............. 2,662 2,695 4,398 11,121 20,406 9,417 30,326
Personnel.............. 4,292 4,537 7,947 24,515 53,097 24,005 71,403
General and
administrative....... 736 790 1,515 6,686 11,605 7,135 16,707
Amortization........... 151 152 229 859 1,843 996 2,975
------- ------- ------- -------- -------- -------- --------
Total operating
expenses...... $18,351 $19,871 $34,446 $135,549 $322,103 $141,432 $371,509
------- ------- ------- -------- -------- -------- --------
Operating income......... $ 3,617 $ 2,450 $ 4,196 $ 14,180 $ 35,267 $ 18,096 $ 37,260
------- ------- ------- -------- -------- -------- --------
Other (income) expense:
Vehicle interest
expense.............. $ 2,440 $ 2,462 $ 3,909 $ 13,874 $ 25,336 $ 11,963 $ 27,794
Non-vehicle interest
expense (income),
net.................. 619 401 (139) (716) 838 262 3,478
Non-recurring expense
(income)............. -- (1,023) -- -- 1,275 -- --
------- ------- ------- -------- -------- -------- --------
Total other
expense....... $ 3,059 $ 1,840 $ 3,770 $ 13,158 $ 27,449 $ 12,225 $ 31,272
------- ------- ------- -------- -------- -------- --------
Income before income
taxes.................. 558 610 426 1,022 7,818 5,871(b) 5,988
Provision for income
taxes.................. -- 182 176 685 3,321 2,348 2,487
------- ------- ------- -------- -------- -------- --------
Net income............... $ 558 $ 428 $ 250 $ 337 $ 4,497 $ 3,523 $ 3,501
======= ======= ======= ======== ======== ======== ========
Weighted average common
and common equivalent
shares outstanding:
Primary.............. -- -- 3,704 6,369 9,488 7,413 16,313
Fully diluted........ -- -- 3,704 6,369 9,488 7,497 16,391
Earnings per common and
common equivalent
share:
Primary.............. -- -- $ 0.07 $ 0.05 $ 0.47 $ 0.48 $ 0.21
Fully diluted........ -- -- 0.07 0.05 0.47 0.47 0.21
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- ----------------------
1994 1995 1996 1996 1997
--------- -------- ---------- -------- ----------
(IN THOUSANDS EXCEPT RENTAL AND RETAIL CAR SALES DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
EBITDA(c).......................... $ 12,923 $ 45,204 $ 101,215 $ 49,112 $ 132,626
Adjusted EBITDA(c)................. 1,632 3,854 15,144 9,126 19,615
Net cash provided by operating
activities....................... 3,660 16,148 54,379 26,618 98,017
Net cash used in investing
activities....................... (122,291) (46,298) (62,806) (100,028) (565,626)
Net cash provided by financing
activities....................... 119,006 29,629 58,560 84,023 685,827
RENTAL DATA (U.S. UNLESS NOTED):(d)
Locations in operation at period
end.............................. 63 133 152 159 476
Number of usable vehicles at period
end(e)........................... 5,044 11,143 14,761 17,094 98,100
Rental transactions(f)............. 276,000 689,000 1,166,000 551,000 1,610,000
Daily dollar average(g)............ $ 37.32 $ 40.75 $ 41.19 $ 42.06 $ 42.31
Vehicle utilization(h)............. 80.6% 80.0% 80.9% 80.8% 79.7%
Average monthly revenue per
unit(i).......................... $ 909 $ 992 $ 1,017 $ 1,019 $ 1,018
RETAIL CAR SALES DATA:
Locations in operation at period
end.............................. -- 7 11 9 23
Average monthly vehicles sold...... -- 351 752 510 1,012
Average monthly sales revenue
(000s)........................... $ -- $ 5,177 $ 12,757 $ 9,281 $ 16,932
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, JUNE 30,
-------------------------------------------------- ----------
1992 1993 1994 1995 1996 1997
------- ------- -------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Revenue earning vehicles, net......... $23,343 $23,577 $ 97,127 $219,927 $319,257 $2,340,807
Vehicle inventory..................... -- -- 943 8,938 16,413 29,618
Total assets.......................... 32,027 33,325 162,991 386,323 587,223 3,599,975
Fleet financing facilities............ 23,890 23,857 123,779 295,647 360,120 2,430,703
Other notes payable................... 3,795 3,632 2,785 22,586 93,989 325,381
Total debt............................ 27,880 28,533 127,187 319,017 454,689 2,756,580
Redeemable preferred stock............ 2,747 2,747 -- -- -- --
Common stock warrant.................. -- -- 2,000 2,000 2,000 --
Stockholders' equity (deficit)........ (1,344) (1,251) 26,748 39,592 92,001 376,626
</TABLE>
- ---------------
(a) Includes revenue from vehicle rentals and related products (such as
insurance and loss damage waivers).
(b) Includes $1.9 million of automobile incentives received in 1995 that
reduced vehicle depreciation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company -- Results of
Operations".
(c) EBITDA consists of income before income taxes plus (i) vehicle interest
expense, (ii) non-vehicle interest expense, (iii) vehicle depreciation
expense and (iv) non-vehicle depreciation and amortization expenses.
Adjusted EBITDA consists of income before income taxes plus (i) non-vehicle
interest expense and (ii) non-vehicle depreciation and amortization
expenses. EBITDA and Adjusted EBITDA are not presented as, and should not
be considered, alternative measures of operating results or cash flows from
operations (as determined in accordance with generally accepted accounting
principles), but are presented because they are widely accepted financial
indicators of a company's ability to incur and service debt.
(d) Does not include data from Van Pool.
(e) Represents vehicles available for rent.
(f) Rounded to the nearest thousand.
(g) Represents rental revenue divided by the number of days that vehicles were
actually rented.
(h) Represents number of days vehicles were actually rented divided by the
number of days vehicles were available for rent.
(i) Represents the average monthly revenue divided by average monthly fleet.
30
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
GENERAL
Prior to the Budget Acquisition, Team Rental Group, Inc. was the largest
Budget franchisee in the United States and was 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
branded retail car sales operation within its Budget franchise territories. This
strategy both leveraged management's experience and created certain operating
efficiencies between these complementary businesses. Through its 152 vehicle
rental locations, TEAM had pro forma vehicle rental revenues of $234.1 million
for 1996. TEAM had pro forma sales revenues of $155.4 million for 1996.
TEAM's retail car sales business has represented an increasing portion of
TEAM's revenues since the opening of TEAM's first retail car sales facility in
November 1994. TEAM added six retail car sales facilities during 1995, with the
retail car sales business producing $42.6 million of revenue for 1995
(representing 28.5% of TEAM's total historical revenue for the year), and added
four facilities during 1996. The retail car sales business produced $134.1
million of revenue for 1996 (representing 37.5% of TEAM's total historical
revenue for the year and 34.4% of TEAM's total pro forma revenue for the year).
TEAM's retail car sales business produced $1.3 million of operating income in
1995 (representing 8.8% of TEAM's total operating income) and $1.9 million of
operating income in 1996 (representing 5.3% of TEAM's total operating income).
At December 31, 1995 and 1996 and June 30, 1997, the retail car sales business
represented 7.8%, 8.3% and 2.6% of the Company's total identifiable assets,
respectively. See Note 15 of the Notes to the Consolidated Financial Statements
of the Company.
The 1994 results of operations reported herein include the consolidated
accounts of the San Diego, California, Richmond, Virginia and Albany and
Rochester, New York Budget franchises 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 TEAM 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. The 1996 results of
operations reported herein include the acquired operations of the Phoenix Budget
franchise, Van Pool and ValCar from their respective acquisition dates.
On April 29, 1997, TEAM acquired the stock of BRACC. The consideration paid
by TEAM pursuant to the Stock Purchase Agreements consisted of (i) approximately
$275.0 million in cash and (ii) the issuance to Ford of 4,500 shares of newly
created Series A Convertible Preferred Stock of the Company, which does not
carry a dividend, and 4,400 shares of which will be converted into 4,400,000
shares of Class A Common Stock in connection with this Offering. The results of
operations of the Company for the six months ended June 30, 1997 include the
operations of BRACC from April 29, 1997.
31
<PAGE> 32
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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- ----------------
1994 1995 1996 1996 1997
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Vehicle rental revenue........................ 100.0% 71.5% 62.5% 65.1% 72.1%
Retail car sales revenue...................... -- 28.5 37.5 34.9 24.9
Royalties and other revenue................... -- -- -- -- 3.0
----- ----- ----- ----- -----
Total operating revenue..................... 100.0 100.0 100.0 100.0 100.0
Direct vehicle and operating expenses......... 24.4 9.2 9.8 8.0 9.4
Cost of car sales............................. -- 25.4 31.9 29.6 21.1
Vehicle depreciation expense.................. 19.1 18.4 17.0 17.6 20.8
Non-vehicle depreciation expense.............. 1.2 0.9 0.7 0.8 1.3
Advertising, promotion and selling............ 8.0 7.9 6.4 6.6 8.6
Facilities.................................... 11.4 7.4 5.7 5.9 7.4
Personnel..................................... 20.6 16.3 14.9 15.1 17.5
General and administrative expenses........... 3.9 4.5 3.2 4.5 4.1
Amortization of franchise rights.............. 0.6 0.5 0.5 0.6 0.7
----- ----- ----- ----- -----
Operating income.............................. 10.8 9.5 9.9 11.3 9.1
Vehicle interest expense...................... 10.1 9.3 7.1 7.5 6.8
Non-vehicle interest expense (income), net.... (0.4) (0.5) 0.2 0.1 0.8
Nonrecurring expense (income)................. -- -- 0.4 -- --
----- ----- ----- ----- -----
Income before income taxes.................... 1.1 0.7 2.2 3.7 1.5
Provision for income taxes.................... 0.5 0.5 0.9 1.5 0.6
----- ----- ----- ----- -----
Net income.................................... 0.6% 0.2% 1.3% 2.2% 0.9%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
GENERAL OPERATING RESULTS. Net income for the first six months of 1997
approximated that of the first six months of 1996 at $3.5 million. Earnings per
share for the first six months of 1997 decreased 56.3% to $.21 per share from
$.48 per share in 1996 due to the increase in average shares outstanding as a
result of the July 1996 Public Offering (3.8 million shares) and the April 1997
Public Offering (8.6 million shares) and the issuance of Series A Convertible
Preferred Stock in connection with the acquisition of BRACC (convertible into
4.5 million shares). Income before income taxes increased $100,000, or 1.7%, for
the first six months of 1997 to $6.0 million from $5.9 million for the first six
months of 1996.
OPERATING REVENUES. Vehicle rental revenue increased $190.7 million, or
183.8%, in the first six months of 1997 to $294.6 million from $103.8 million in
the first six months of 1996 due to the acquisition of BRACC, which added a
significant number of locations and vehicles to the Company's operations.
Vehicle sales revenue increased $45.9 million, or 82.4%, in the first six months
of 1997 to $101.6 million from $55.7 million in the first six months of 1996 due
to the addition of the car sales operations of BRACC as well as new stores
opened by the Company. Royalties and other revenues totaled $12.6 million in the
first six months of 1997 and largely represent royalty and other fees due from
the Company's franchisees.
OPERATING EXPENSES. Total operating expenses increased $230.1 million, or
162.7%, in the first six months of 1997 to $371.5 million from $141.4 million in
the first six months of 1996. This increase was also due to the addition of
BRACC's operations to the Company's operations. The cost of vehicles sold
increased $38.8 million, or 82.0%, in the first six months of 1997 to $86.1
million from $47.3 million in 1996. This increase reflects the growth of car
sales revenue with the addition of BRACC car sales locations and new locations
opened by the Company. Amortization expense increased $2.0 million, or 200%, in
the first six months of 1997 to $3.0 million from $1.0 million in the first six
months of 1996, largely due to intangibles, including goodwill, related to the
BRACC Acquisition.
32
<PAGE> 33
OTHER (INCOME) EXPENSE, NET. Interest expense, net of interest income,
increased $19.2 million, or 156.6%, in the first six months of 1997 to $31.3
million from $12.2 million in the first six months of 1996, due to the financing
of fleet and other borrowings related to the BRACC Acquisition, net of
investment income due to the increase in cash.
PROVISION FOR INCOME TAXES. The provision for income taxes increased
$100,000 in the first six months of 1997 to $2.5 million from $2.4 million for
the first six months of 1996. The tax provision reflects a rate which is higher
than the statutory rate due to the effects of state and local income taxes net
of the federal benefit.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
GENERAL OPERATING RESULTS. Net income for 1996 increased $4.2 million, or
1,234.4%, to $4.5 million from $337,000 for 1995. Income before provision for
income taxes increased over seven times from $1.0 million in 1995 to $7.8
million for 1996. This increase was due to TEAM's acquisition activity and the
growth of TEAM's car sales operations from seven locations at December 31, 1995
to 11 locations at December 31, 1996. Operating income for 1996 increased $21.1
million, or 148.7%, from $14.2 million for 1995 to $35.3 million for 1996, due
primarily to an increase in the vehicle fleet resulting from the acquisitions of
the Budget franchises in Arizona and Southern California and Van Pool. The daily
average rental rate increased slightly to $41.19 in 1996 from $40.75 in 1995.
OPERATING REVENUES. Vehicle rental revenues for 1996 increased $116.2
million, or 108.5%, from $107.1 million in 1995 to $223.3 million in 1996. The
increase in rental revenues was due primarily to the increase in the size of
TEAM from operating 133 rental locations in 12 franchise areas at December 31,
1995 to operating 152 locations in 13 franchise territories at December 31,
1996, and to the acquisition of Van Pool in February 1996. Revenues from TEAM's
retail car sales operations increased $91.5 million from $42.7 million in 1995
to $134.1 million in 1996 due to the expansion of TEAM's car sales facilities
from seven locations at December 31, 1995 to 11 locations at December 31, 1996.
OPERATING EXPENSES. Operating expenses increased approximately $186.6
million, or 137.6%, to $322.1 million for 1996 as compared to $135.5 million for
1995. The growth of TEAM's vehicle rental operations through the acquisitions
discussed above was the principal cause of all the increases in TEAM's operating
expenses. Vehicle depreciation increased approximately $33.3 million, or 121.0%,
in 1996 due to an increase in fleet of 7,800 vehicles. Advertising expenses
increased from $11.8 million in 1995 to $23.0 million for 1996 due to the
increase in the size of the rental operations and due to the growth of the
retail car sales operations from five markets at December 31, 1995 to 11 markets
at December 31, 1996. The retail car sales business typically incurs greater
advertising expense than the car rental business. Facilities' expense increased
$9.3 million, or 83.5%, in 1996 as compared to 1995 due to the addition of 19
locations since December 31, 1995. Personnel costs increased approximately
116.6% in 1996 as compared to 1995 due to an increase of approximately 800
employees since December 31, 1995. Other operating expense increased due to a
greater volume of rental business resulting from the 1995 and 1996 acquisitions.
OTHER (INCOME) EXPENSE, NET. Interest expense, net of interest income,
increased from $13.2 million for 1995 to $27.4 million for 1996. Vehicle
interest expense increased approximately $11.5 million in 1996 due to the
increase in the size of TEAM's rental fleet from approximately 7,800 vehicles at
December 31, 1995 to approximately 15,600 vehicles at December 31, 1996.
Non-vehicle interest (income) expense changed from income of $716,000 in 1995 to
$838,000 of expense in 1996. This increase was primarily due to non-vehicle
interest paid on financing for the acquisition of the Phoenix Budget franchise.
PROVISION FOR INCOME TAXES. The provision for income taxes increased $2.6
million from $685,000 for 1995 to $3.3 million for 1996. The tax provision is
calculated at a rate of approximately 42.5%. The increase in provision is due to
the enhanced profitability of TEAM in 1996 as compared to 1995.
33
<PAGE> 34
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 TEAM'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 TEAM, nondeductible amortization expense, and state income
taxes. The daily average rental rate increased to $40.75 in 1995 from $37.32 in
1994, an increase of 9.2%.
OPERATING REVENUES. Operating revenues increased 287.8% in 1995 to $149.7
million from $38.6 million in 1994. 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 days in 1995 from 1,027,000 days in 1994. The daily average rental
rate increased 9.2% from $37.32 in 1994 to $40.75 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 293.5%, to $135.5 million for 1995 from $34.4 million in 1994. This
increase was due in large measure to the growth of TEAM'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 11,144 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 272.2%, to $27.5 million due to an increase in fleet
size of 121% to 11,144 vehicles at December 31, 1995. Personnel expenses
increased 208.5% 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 TEAM 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 249.0%, in 1995 due primarily to interest expense on the increased
vehicle fleet operated by TEAM 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 of $0.7 million earned on cash
restricted for acquiring vehicles under TEAM's existing fleet financing
facilities.
PROVISION FOR INCOME TAXES. The provision for income taxes increased
289.2% to $685,000 in 1995 from $176,000 in 1994. TEAM'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 TEAM in 1995, certain amortization
expense that was not deductible for income taxes purposes, and state income
taxes.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's operations have been funded by cash provided
from operating activities and by financing provided by banks, automobile
manufacturers' captive finance companies and leasing companies. The material
terms of the Company's financing facilities are described below and under the
caption "Description of Certain Indebtedness". The Company's existing
indebtedness at June 30, 1997 has interest rates ranging from 5.6% to 9.6%. The
Company intends to fund its operations through asset-
34
<PAGE> 35
backed notes and revolving credit facilities with financial institutions for
fleet financing and working capital, as well as through other similar facilities
and through placements or offerings of additional debt and/or equity securities.
At June 30, 1997, the Company had borrowed $2.4 billion under asset-backed
notes and a commercial paper facility, which are utilized largely to finance
vehicles eligible for certain manufacturers' vehicle repurchase programs.
Proceeds from the asset-backed notes that are temporarily unutilized for vehicle
financing are maintained in restricted cash accounts with the trustees. The
notes are collateralized by the secured vehicles and the restricted cash
accounts. Rates on asset-backed notes and the commercial paper facility at June
30, 1997 range from 5.6% to 7.8%.
The Company's other vehicle obligations consist of outstanding lines of
credit to purchase rental fleet and retail car sales inventory. Collateralized
available lines of credit at June 30, 1997 consist of $13.0 million for rental
vehicles and $26.0 million for retail car sales inventory with maturity dates
through May 1998. Vehicle obligations are collateralized by revenue earning
vehicles financed under these credit facilities and proceeds from the sale,
lease or rental of rental vehicles and retail car sales inventory. Interest
payments for rental fleet facilities are due monthly at annual interest rates
ranging from 6.9% to 8.5% at June 30, 1997. Management expects that 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' vehicle
repurchase programs or from the sale of the vehicles.
Monthly payments of interest only for retail car sales inventory
obligations are required at an annual interest rate of 8.5% at June 30, 1997.
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.
Net cash provided by operating activities for the six months ended June 30,
1997 increased 268.4% to $98.0 million from $26.6 million for the six months
ended June 30, 1996. Net cash provided by operating activities for 1996
increased 237.9% to $54.4 million from $16.1 million in 1995. Net cash provided
by operating activities for 1995 increased 341.2% to $16.1 million from $3.7
million in 1994. In each period, the Company experienced increases in cash
received from rentals which were offset to some extent by increases in cash paid
to vendors and employees and in interest expenses.
Net cash used in investing activities for the six months ended June 30,
1997 increased 465.5% to $565.6 million from $100.0 million for the six months
ended June 30, 1996. Net cash used in investing activities is primarily
attributable to cash paid to suppliers of revenue vehicles and, to a lesser
extent, capital expenditures. This cash use is mainly offset by cash received
from the sale of vehicles (most of which sales were pursuant to manufacturers'
vehicle repurchase programs). Cash received from the sale of vehicles was $460.6
million, $293.9 million and $73.7 million for 1996, 1995 and 1994, respectively.
Cash paid to suppliers of revenue vehicles was $517.1 million, $315.9 million
and $155.2 million for 1996, 1995 and 1994, respectively. The increase in cash
paid to suppliers of revenue vehicles during 1996 was a result of the increased
number of operating locations throughout 1996. Payment for acquisitions, net of
assets acquired, amounted to $5.1 million, $6.5 million and $5.7 million for
1996, 1995 and 1994, respectively.
Net cash provided by financing activities for the six months ended June 30,
1997 increased 716.2% to $685.8 million from $84.0 million for the six months
ended June 30, 1996. Net cash provided by financing activities for 1996
increased 98.0% to $58.6 million from $29.6 million in 1995, due primarily to
proceeds received from the issuance of Class A Common Stock and the Series A
Convertible Notes, which was partially offset by the utilization of a portion of
these proceeds to repay existing vehicle and non-vehicle debt. Net cash provided
by financing activities for 1995 decreased 75.1% to $29.6 million from $119.0
million in 1994, due primarily to the receipt of proceeds from the Company's
initial public offering and a vehicle financing facility in 1994, for which
there were no corresponding receipts in 1995.
35
<PAGE> 36
FLEET FINANCING FACILITIES
Historically, TEAM's operations were partially funded by cash provided from
operating activities and by financing provided under asset-backed notes issued
under the First, Second and Third Fleet Financing Facilities (collectively, the
"Fleet Financing Facilities"). At December 31, 1996, amounts outstanding under
the Fleet Financing Facilities were comprised of $105.7 million of asset-backed
notes issued by TEAM's special purpose finance subsidiary, Team Fleet Financing
Corporation ("TFFC"), in August 1994 (the "First Fleet Financing Facility"),
$40.0 million of asset-backed notes assumed by TEAM in connection with the
acquisition of the Los Angeles, California Budget franchise in October 1995 (the
"Second Fleet Financing Facility") and $176.0 million of asset-backed notes
issued by TFFC in December 1996 (the "Third Fleet Financing Facility"). These
facilities have been principally utilized to finance Program Vehicles. 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 financed vehicles and the restricted cash accounts, with the vehicles
being leased to TEAM's operating subsidiaries.
The First Fleet Financing Facility is comprised of senior and subordinated
notes. The senior notes require monthly interest payments at an annual rate of
average LIBOR, as defined, plus 0.75% (6.4% at December 31, 1996). Monthly
principal payments of $16.7 million commence in June 1999 with the last payment
due in November 1999. The subordinated notes included in the First Fleet
Financing Facility require monthly interest payments at an annual rate of
average LIBOR, as defined, plus 1.30% (6.9% at December 31, 1996) and are
payable in full in December 1999.
The Second Fleet Financing Facility is comprised of senior and subordinated
notes. The senior notes require monthly interest payments at an annual rate of
average LIBOR, as defined, plus 0.60% (6.2% at December 31, 1996). Monthly
principal payments of $4.8 million commence in November 1997 with the last
payment due in June 1998. The subordinated notes included in the Second Fleet
Financing Facility require monthly interest payments at an annual rate of
average LIBOR, as defined, plus 1.0% (6.6% at December 31, 1996) and are payable
in full in July 1998.
The Third Fleet Financing Facility is comprised of senior and subordinated
notes. The senior notes require monthly interest payments at an annual rate of
6.65%. Monthly principal payments of $13.8 million commence in 2001 with the
last payment due in 2002. The subordinated notes included in the Third Fleet
Financing Facility require monthly interest payments at an annual rate of 7.10%
and are payable in full in June 2002. Up to $100 million of the Third Fleet
Financing may be used to finance vehicles that are not Program Vehicles.
APRIL 1997 FLEET FINANCINGS
The April 1997 Fleet Financings entered into concurrently with the Budget
Acquisition provide financing for $1.4 billion of vehicles. The April 1997 Fleet
Financings consist of a $900.0 million commercial paper facility and an
additional $500.0 million asset-backed note facility. The asset-backed note
facility consists of senior and subordinated notes. The senior notes require
monthly interest payments at an annual rate of 7.35%. Monthly principal payments
of $39.4 million commence November 2001 with a final payment due in October
2002. The subordinated notes require monthly interest payments at an annual rate
of 7.80% and are payable in full in November 2002.
BUDGET FLEET FINANCING FACILITY
Historically, BRACC's operations were partially funded with cash provided
by notes issued by Budget Fleet Finance Corporation (the "BFFC Facility"), which
is a special purpose bankruptcy remote corporation. The Company has continued to
utilize borrowings under the BFFC Facility to fund its operations. The BFFC
Facility consists of $500.0 million of senior notes requiring monthly interest
payments at LIBOR plus 0.50% (6.14% at August 21, 1997). Six monthly principal
payments of $83.3 million commence in April 1999 with the last payment due in
September 1999.
36
<PAGE> 37
THE DEBT PLACEMENTS
Concurrently with the Budget Acquisition, the Company issued $45.0 million
aggregate principal amount of Series B Convertible Notes, and BRACC issued
$165.0 million aggregate principal amount of Guaranteed Senior Notes, which are
guaranteed by the Company and certain subsidiaries of the Company. The
Guaranteed Senior Notes bear interest at a rate of 9.57% and mature in 2007. In
addition, the note purchase agreements relating to the Series A Convertible
Notes, which had been issued in December 1996, were amended to extend the
maturity of the Series A Convertible Notes to April 2007 and conform other terms
to the terms of the Series B Convertible Notes. At a conversion price of $20.07
per share, the Series A Convertible Notes are convertible into an aggregate of
3,986,049 shares of Class A Common Stock, bear interest at a rate of 7.0% and
mature in 2007. At a conversion price of $27.96 per share, the Series B
Convertible Notes are convertible into 1,609,442 shares of Class A Common Stock,
bear interest at a rate of 6.85% and mature in 2007. See "Description of Certain
Indebtedness".
APRIL 1997 WORKING CAPITAL FACILITY
Concurrently with the Budget Acquisition, BRACC entered into a $300.0
million five-year secured credit facility (the "April 1997 Working Capital
Facility"), which is guaranteed by the Company. At June 30, 1997, the Company
had $256.1 million in letters of credit outstanding under this facility. The
following is a summary of the material terms and conditions of the April 1997
Working Capital Facility.
The April 1997 Working Capital Facility consists of a five-year senior,
secured revolving credit facility in the amount of $300.0 million. The April
1997 Working Capital Facility provides that (i) up to $100.0 million is
available for loans, (ii) up to $40.0 million (or the equivalent thereof in
certain foreign currencies) of such $100.0 million is available under a
multi-currency subfacility, (iii) up to $300.0 million is available for letters
of credit and (iv) up to $225.0 million of such $300.0 million is available for
letters of credit for credit enhancement of commercial paper or similar fleet
financing programs. In addition, aggregate letter of credit and loan
outstandings under the April 1997 Working Capital Facility are subject to a
borrowing base limitation and may not at any time exceed the sum of 85% of
eligible receivables (as defined therein), 100% of eligible repurchase vehicles
(as defined therein), 85% of eligible non-repurchase vehicles (as defined
therein), and 100% of eligible cash and cash equivalents (as defined therein).
All letters of credit and loans under the April 1997 Working Capital Facility
mature on or by the fifth anniversary of the date of the loan agreement.
Interest accrues on borrowings outstanding under the April 1997 Working
Capital Facility, at the Company's option, at a rate equal to (i) either the
higher of (A) the interest rate established by Credit Suisse as its base or
prime rate in effect at its principal office in New York City and (B) the
federal funds effective rate from time to time plus 0.5% (the higher of these
being known as the "ABR") plus the applicable margin for ABR loans (which margin
shall range from approximately 0.25% to 1.25%) or (ii) the rate at which
Eurocurrency deposits in the relevant denomination currency for one, two, three
or six months (as selected by the Company) are offered by Credit Suisse in the
relevant interbank Eurocurrency market plus the applicable margin for the
Eurocurrency rate (which margin shall range from 1.25% to 2.25%). The April 1997
Working Capital Facility requires the Company to pay the following fees: (i) a
commitment fee based on the ratio of adjusted debt to adjusted EBITDA of the
Company and ranging from 0.25% to 0.375% per annum; (ii) a letter of credit fee
on the aggregate amount available under outstanding letters of credit equal to a
rate per annum which is the same as the applicable margin for Eurocurrency loans
from time to time in effect; and (iii) a letter of credit fronting fee equal to
a rate per annum of 1/8% of the aggregate amount available under each letter of
credit issued.
The April 1997 Working Capital Facility is secured by (a) a first-priority
lien on (i) the capital stock of BRACC and each direct and indirect subsidiary
of BRACC (with respect to the international subsidiaries, no more than 65% of
the stock of each subsidiary will be required to be pledged in the event that a
pledge of a greater percentage would result in material increased tax or similar
liabilities for Budget Group and its subsidiaries on a consolidated basis); (ii)
cash and other working capital such as
37
<PAGE> 38
receivables and related contract rights of BRACC and its subsidiaries (other
than assets pledged as security in respect of a vehicle financing program); and
(iii) all assets included in the borrowing base and (b) as to letters of credit
issued as credit and/or liquidity enhancement for the Company's commercial paper
program, perfected liens on the assets surrounding the commercial paper issued
pursuant to the commercial paper program (which, in the case of credit
enhancement, will generally be subordinated).
The April 1997 Working Capital Facility contains a number of customary
affirmative covenants, including covenants which require BRACC and the Company
to deliver financial statements and other reports; pay other obligations;
maintain corporate existence; comply with laws and contracts; maintain
properties and insurance; maintain books and records; grant the lenders certain
inspection rights; provide notices of defaults, litigation and material events;
and comply with environmental matters. The April 1997 Working Capital Facility
also contains a number of customary negative covenants, including limitations on
indebtedness (including preferred stock), liens, guarantee obligations, mergers,
consolidations, liquidations and dissolutions, sales of assets, leases,
dividends and other payments in respect of capital stock, capital expenditures,
investments, loans and advances; payments and modifications of subordinated and
other debt instruments, transactions with affiliates, changes in fiscal year;
negative pledge clauses; and changes in lines of business.
BRACC and the Company are required to meet certain financial covenants,
consisting of (a) a minimum net worth (as defined) of the Company equal to the
sum of (i) $263,375 plus 50% of the net income of the Company for each fiscal
year commencing with 1997 as shall have been completed on or prior to the time
of computation plus 50% of the net equity proceeds (as defined); (b) a maximum
leverage ratio (as defined) of 5.60 to 1.00 for the quarter ending September 30,
1997, declining to 3.25 to 1.00 for the quarter ending December 31, 1999 and
each fiscal quarter thereafter; and (c) a minimum interest coverage ratio (as
defined) of 2.50 to 1.00 for the quarter ending September 30, 1997, increasing
to 3.25 to 1.00 for the quarter ending September 30, 1999 and each fiscal
quarter thereafter. See "Description of Certain Indebtedness -- The April 1997
Working Capital Facility".
CHANGE IN FINANCIAL CONDITION
Total assets increased $3.0 billion from $587.2 million at December 31,
1996 to $3.6 billion at June 30, 1997. This increase resulted primarily from
increases in revenue-earning vehicles of $2.0 billion and intangibles of $324.6
million resulting from the BRACC Acquisition. Total liabilities increased $2.7
billion from $493.2 million at December 31, 1996 to $3.2 billion at June 30,
1997 due primarily to an additional $2.3 billion of net borrowings largely to
finance the vehicles of BRACC. The increase in stockholders' equity of
approximately $284.6 million was due to the April 1997 Public Offering and
issuance of Series A Convertible Preferred Stock in connection with the Budget
Acquisition.
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 is not expected to be greater
for the Company than for its competitors.
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<PAGE> 39
SEASONALITY
Generally, in the vehicle rental industry, revenues increase in the spring
and summer months (with the exception of resort destinations) due to the overall
increase 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 retail car sales
business is subject to seasonal effects, with lower sales during the winter
months. See "Risk Factors -- Seasonality".
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<PAGE> 40
SELECTED HISTORICAL FINANCIAL DATA OF BRACC
The following table sets forth selected consolidated statement of
operations data and selected consolidated balance sheet data of BRACC. The
selected financial data for each of the five years ended December 31, 1996 are
derived from the consolidated financial statements of BRACC. The data presented
for each of the three months ended March 31, 1996 and 1997 are derived from
unaudited financial statements, but in the opinion of BRACC reflect all
adjustments (consisting of normal recurring adjustments) that BRACC considers
necessary for a fair presentation of such information in accordance with
generally accepted accounting principles. The selected financial data below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations of BRACC" and the Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
Operating revenue:
Vehicle rental
revenue(a)............. $1,080,700 $ 954,188 $1,011,203 $1,034,873 $ 963,764 $221,778 $228,135
Retail car sales
revenue................ 72,253 63,596 77,999 83,795 91,503 22,734 20,913
Other revenue............ 61,435 61,903 66,564 74,802 77,554 17,259 17,363
---------- ---------- ---------- ---------- ---------- -------- --------
Total operating
revenue......... $1,214,388 $1,079,687 $1,155,766 $1,193,470 $1,132,821 $261,771 $266,411
Operating costs and
expenses:
Direct vehicle and
operating.............. 221,239 176,252 134,126 153,081 121,288 25,871 31,713
Depreciation -- vehicle... 278,344 206,271 257,356 323,619 263,846 54,583 65,439
Depreciation -- non-
vehicle................ 25,297 20,431 21,410 19,520 26,645 6,502 6,413
Cost of car sales........ 64,639 54,969 67,314 72,416 78,944 19,598 18,430
Advertising, promotion
and selling............ 108,978 99,879 99,738 106,446 83,304 19,441 27,585
Facilities............... 115,155 108,741 110,386 113,286 114,325 28,471 28,904
Personnel................ 274,081 248,947 269,370 280,901 248,655 61,939 63,985
General and
administrative......... 85,625 82,731 69,117 88,612 54,194 17,638 14,430
Intangible
amortization........... 17,223 17,852 16,874 17,006 16,969 4,185 4,180
---------- ---------- ---------- ---------- ---------- -------- --------
Total operating
costs and
expenses........ $1,190,581 $1,016,073 $1,045,691 $1,174,887 $1,008,170 $238,228 $261,079
Operating income........... $ 23,807 $ 63,614 $ 110,075 $ 18,583 $ 124,651 $ 23,543 $ 5,332
Other expense:
Vehicle interest
expense................ 101,032 78,205 86,127 124,758 92,738 22,949 22,589
Non-vehicle interest
expense................ 18,923 16,283 18,823 25,151 31,444 7,265 7,043
---------- ---------- ---------- ---------- ---------- -------- --------
Income (loss) before
provision for income
taxes.................... $ (96,148) $ (30,874) $ 5,125 $ (131,326) $ 469 $ (6,671) $(24,300)
Provision for income
taxes.................... (4,900) -- 4,000 1,314 3,000 600 (4,860)
---------- ---------- ---------- ---------- ---------- -------- --------
Net income (loss).......... $ (91,248) $ (30,874) $ 1,125 $ (132,640) $ (2,531) $ (7,271) $(19,440)
========== ========== ========== ========== ========== ======== ========
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT RENTAL AND RETAIL CAR SALES DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
EBITDA(b).................... $ 405,715 $ 378,728 $ 432,111 $ 88,813 $ 81,364
Adjusted EBITDA(b)........... 62,232 (69,649) 75,527 11,281 (6,664)
Net cash provided by
operating activities...... 280,793 173,944 256,290 72,826 95,811
Net cash used in investing
activities................ (411,810) (180,938) (205,054) (147,880) (259,409)
Net cash provided by (used
in) financing
activities................ 173,789 35,661 (87,561) 44,288 156,928
RENTAL DATA (U.S. UNLESS
NOTED):
Locations in operation at
period end (worldwide).... 447 390 374 388 374
Number of usable vehicles at
period end(c)............. 75,467 68,148 67,137 69,060 76,284
Rental transactions(d)....... 6,030,000 5,909,000 5,346,000 1,212,000 1,261,000
Daily dollar average(e)...... $ 38.43 $ 39.58 $ 41.26 $ 41.57 $ 40.33
Vehicle utilization(f)....... 77.4% 75.1% 76.7% 76.2% 79.5%
Average monthly revenue per
unit(g)................... $ 904 $ 904 $ 966 $ 960 $ 962
RETAIL CAR SALES DATA:
Locations in operation at
period end................ 8 9 11 9 11
Average monthly vehicles
sold...................... 462 449 491 497 480
Average monthly sales revenue
(000s).................... $ 6,500 $ 6,983 $ 7,625 $ 7,578 $ 6,971
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Revenue earning vehicles,
net..................... $1,362,548 $1,339,000 $1,543,661 $1,353,989 $1,303,975 $ 1,494,755
Vehicle inventory......... 5,753 7,396 9,674 11,756 14,299 14,828
Total assets.............. 2,590,002 2,405,204 2,602,374 2,488,115 2,328,115 2,484,152
Fleet financing
facilities.............. 1,628,190 1,462,783 1,614,247 1,465,472 1,361,619 1,513,259
Other notes payable....... 216,326 245,714 268,039 452,475 468,767 474,055
Total debt................ 1,844,516 1,708,497 1,882,286 1,917,947 1,830,386 1,987,314
Mandatory redeemable
preferred stock......... 206,250 221,250 236,250 251,250 5,178 5,272
Stockholders' equity...... 111,934 59,558 49,909 (106,102) 143,965 121,288
</TABLE>
- ---------------
(a) Includes revenue from vehicle rentals and related products (such as
insurance and loss damage waivers).
(b) EBITDA consists of income before income taxes plus (i) vehicle interest
expense, (ii) non-vehicle interest expense, (iii) vehicle depreciation
expense and (iv) non-vehicle depreciation and amortization expenses.
Adjusted EBITDA consists of income before income taxes plus (i) non-vehicle
interest expense and (ii) non-vehicle depreciation and amortization
expenses. EBITDA and Adjusted EBITDA are not presented as, and should not
be considered, alternative measures of operating results or cash flows from
operations (as determined in accordance with generally accepted accounting
principles), but are presented because they are widely accepted financial
indicators of a company's ability to incur and service debt.
(c) Represents vehicles available for rent.
(d) Rounded to the nearest thousand.
(e) Represents rental revenue divided by the number of days that vehicles were
actually rented.
(f) Represents the number of days vehicles were actually rented divided by the
number of days vehicles were available for rent.
(g) Represents average monthly revenue divided by average monthly fleet.
41
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BRACC
GENERAL
Budget Rent a Car Corporation (following the Budget Acquisition, a wholly
owned subsidiary of the Company) is the owner of the "Budget" trademark on a
worldwide basis and is the international franchisor of the Budget System, which
is the third largest worldwide general use car and truck rental system with
approximately 3,000 locations.
BRACC was established in 1958 as a vehicle rental company serving the
downtown and suburban markets of cities in the United States and Canada. In
1960, BRACC began its franchising activities and positioned itself as the value
leader among the competing car rental companies. BRACC remained primarily a
franchise system until the 1980s when it undertook a strategic shift to acquire
franchisees with a view to becoming an operating company. Management believes
that company-owned locations provide enhanced customer service and earnings on a
long-term basis. Additionally, BRACC believes that its identification as a lower
cost provider of rental vehicles may protect its competitive position in the
event of negative economic developments.
For the year ended December 31, 1996, BRACC had 304 company-owned locations
which accounted for more than 60% of the Budget System's U.S. fleet.
Additionally, BRACC has expanded its operating strategy to international markets
and has company-owned locations in the United Kingdom, France, Switzerland,
Australia and New Zealand which account for more than 8% of the Budget System's
international rental revenue.
BRACC's international operations have historically been largely franchised.
For 1994, 1995, 1996 and the three months ended March 31, 1997, royalty fees
from international franchisees were 21.2%, 21.9%, 22.6% and 22.3% of BRACC's
total international revenue and represented 45.9%, 49.0%, 50.4% and 53.8% of
BRACC's total royalty fees, respectively. The franchised nature of BRACC's
operations lowered its funding and overall capital requirements. At December 31,
1994, 1995, 1996, and March 31, 1997, BRACC's international operations accounted
for 6.2%, 6.8%, 8.0% and 7.4% of BRACC's total assets, respectively, while the
percent of BRACC's total debt represented by these operations was 3.1%, 3.1%,
3.9% and 3.6% respectively. See Note 16 of the Notes to the Consolidated
Financial Statements of BRACC.
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<PAGE> 43
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
operating revenues represented by certain items in BRACC's combined statements
of operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ------------------
1994 1995 1996 1996 1997
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Vehicle rental revenue.............. 87.5% 86.7% 85.1% 84.7% 85.6%
Royalty fee revenue................. 4.6 4.9 5.3 5.1 5.1
Retail car sales revenue............ 6.7 7.0 8.1 8.7 7.8
Other revenue....................... 1.2 1.4 1.5 1.4 1.4
----- ----- ----- ----- -----
Total operating revenue... 100.0 100.0 100.0 100.0 100.0
Direct vehicle and operating
expenses.......................... 11.6 12.8 10.7 9.9 11.9
Depreciation -- vehicles............ 22.3 27.1 23.3 20.9 24.6
Depreciation -- non-vehicle......... 1.9 1.6 2.4 2.4 2.4
Cost of vehicles sold at retail..... 5.8 6.1 7.0 7.5 6.9
Advertising, promotion and selling
expenses.......................... 8.6 8.9 7.3 7.4 10.4
Facilities.......................... 9.5 9.5 10.1 10.9 10.8
Personnel........................... 23.3 23.5 21.9 23.7 24.0
General and administrative
expenses.......................... 6.0 7.5 4.8 6.7 5.4
Intangible amortization............. 1.5 1.4 1.5 1.6 1.6
----- ----- ----- ----- -----
Earnings before interest and income
taxes............................. 9.5 1.6 11.0 9.0 2.0
Interest expense.................... 9.1 12.6 11.0 11.5 11.1
----- ----- ----- ----- -----
Income (loss) before income taxes... 0.4 (11.0) 0.0 (2.5) (9.1)
Provision for income taxes.......... 0.3 0.1 0.2 0.2 (1.8)
----- ----- ----- ----- -----
Net income (loss)................... 0.1% (11.1)% (0.2)% (2.8)% (7.3)%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
GENERAL OPERATING RESULTS. BRACC incurred a net loss of $19.4 million in
the three months ended March 31, 1997 compared to a net loss of $7.3 million in
the three months ended March 31, 1996. The loss before income taxes increased to
$24.3 million in the three months ended March 31, 1997 from a loss of $6.7
million in the three months ended March 31, 1996. The increased loss reflects
higher depreciation and other vehicle costs as well as higher net advertising
and promotion expenses.
OPERATING REVENUES. Operating revenues increased $4.6 million, or 1.8%, to
$266.4 million in the three months ended March 31, 1997 from $261.8 million in
the three months ended March 31, 1996. Vehicle rental revenue increased $6.4
million, or 2.9%, to $228.1 million in the three months ended March 31, 1997
from $221.8 million in the three months ended March 31, 1996, primarily due to a
5.5% increase in vehicle rental days that was somewhat offset by a 3.0% decrease
in the daily average rental rate. Retail car sales revenue decreased $1.8
million, or 8.0% reflecting a 3.4% decrease in the number of units sold and a
change to lower priced units in the mix of vehicles sold.
OPERATING EXPENSES. Operating expenses increased $22.9 million, or 9.6%,
to $261.1 million in the three months ended March 31, 1997 from $238.2 million
in the three months ended March 31, 1996. Direct vehicle and operating expenses
increased $5.8 million, or 22.6%, to $31.7 million in the three months ended
March 31, 1997 from $25.9 million in the three months ended March 31, 1996
largely due to a $2.5 million increase in vehicle damage and repair expenses, an
$800,000 increase in vehicle shuttling expenses (which helped improve the
utilization of revenue earning vehicles by 3.3%) and a 2.2% increase in the
average number of vehicles. Vehicle depreciation expenses increased $10.9
million, or 19.9%, to $65.4 million in the three months ended March 31, 1997
from $54.6 million in the three months ended March 31, 1996, largely due to the
increase in fleet size and a $7.5 million favorable adjustment to expense in
1996 on trucks to align monthly depreciation charges with actual costs
experienced upon final disposition of the asset. Cost of vehicles sold decreased
$1.2 million, or 6.0%, to
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<PAGE> 44
$18.4 million in the three months ended March 31, 1997 from $19.6 million in the
three months ended March 31, 1996 reflecting the lower number of units sold and
the change in mix. Advertising, promotion and selling expenses increased $8.1
million, or 41.9%, to $27.6 million in the three months ended March 31, 1997
from $19.4 million in the three months ended March 31, 1996 largely due to a
$5.7 million decrease in funding of advertising and promotion from third parties
and a $.6 million increase in advertising expenditures. General and
administrative expenses decreased $3.2 million, or 18.2%, to $14.4 million in
the three months ended March 31, 1997 from $17.6 million in the three months
ended March 31, 1996 largely due to an improvement in bad debt expenses of $1.6
million in 1997 reflecting temporary collection difficulties experienced in the
beginning of 1996 (following the centralization of accounting functions) and a
$1.1 million gain in the three months ended March 31, 1997 related to a gain on
sale of the company's investment in Compass Computer Services, Inc.
INTEREST EXPENSE. Interest expense decreased by $582,000, or 1.9%, to
$29.6 million in the three months ended March 31, 1997 from $30.2 million in the
three months ended March 31, 1996 as slightly lower interest rates in 1997 more
than offset the higher borrowings levels reflective of the increase in fleet
levels.
PROVISION FOR INCOME TAXES. The provision for income taxes increased by
$5.5 million to a benefit of $4.9 million in the three months ended March 31,
1997 from a provision of $600,000 in the three months ended March 31, 1996. The
improvement is the result of recognizing a benefit based on the expected
effective tax rate of 20% in 1997 versus recording the provision on the
straight-line method in 1996 due to expected break-even or lower results for the
full year.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
GENERAL OPERATING RESULTS. BRACC had a net loss of $2.5 million for 1996
compared to a net loss of $132.6 million for 1995. Income before income taxes
increased to $469,000 for 1996 from a loss of $131.3 million for 1995. This
improvement reflects the changes BRACC implemented during 1996 by placing a
greater focus on cost reductions, location and segment profitability, customer
service and operational consistency.
OPERATING REVENUES. Operating revenues decreased $60.7 million, or 5.1%,
to $1,132.8 million for 1996 from $1,193.4 million for 1995. Vehicle rental
revenues decreased $71.1 million, or 6.9%, to $963.8 million for 1996 from
$1,034.9 million for 1995, primarily due to a change in fleet mix, which reduced
the number of higher priced luxury and specialty vehicles, and the elimination
of unprofitable segments of the business, including selected low margin
government and tour businesses. The daily average rental rate increased to
$41.26 in 1996 from $39.58 in 1995, an increase of 4.2%, partly reflective of
the reduction in low margin business and an upward movement in the daily rental
prices. Royalty fees increased $2.5 million, or 4.3%, to $60.4 million in 1996
from $57.9 million in 1995 due to growth in international markets. Retail car
sales revenue increased $7.7 million, or 9.2%, to $91.5 million for 1996 from
$83.8 million for 1995 largely due to a 9.4% increase in the number of units
sold.
OPERATING EXPENSES. Operating expenses decreased $166.7 million, or 14.2%,
to $1,008.2 million for 1996 from $1,174.9 million for 1995. Vehicle
depreciation expense decreased $59.8 million, or 18.5%, to $263.8 million for
1996 from $323.6 million for 1995, as a result of more closely aligning fleet
mix with customer demand, a lower depreciation rate on purchased risk vehicles
for depreciated values to reflect the fair market wholesale values for vehicles
to be sold (due to a strong used car and truck wholesale environment), and a
13.7% reduction in average fleet size resulting from an 11.6% reduction in
rental volume. The smaller fleet size reduced vehicle depreciation by
approximately $44.2 million while the risk vehicle depreciation change, the
change in fleet mix and all other changes provided the remaining $15.6 million
decrease from 1995. Direct vehicle and operating expenses decreased $31.8
million, or 20.8%, to $121.3 million in 1996 from $153.1 million in 1995,
largely due to the reduction in average fleet size. The change in fleet mix,
which reduced the number of higher priced luxury and specialty vehicles, and
continued improvement in risk management expenses, reflecting ongoing efforts to
minimize the exposure to higher risk renters, together contributed to an $11.7
million reduction in vehicle damage
44
<PAGE> 45
expenses and a $14.2 million reduction in vehicle insurance expenses.
Non-vehicle depreciation expense increased $7.1 million, or 36.5% to $26.6
million for 1996 from $19.5 million for 1995, largely due to amortization of a
new reservation system installed in the fourth quarter of 1995. Cost of vehicles
sold at retail increased $6.5 million, or 9.0% to $78.9 million for 1996 from
$72.4 million for 1995 largely due to the higher number of units sold.
Advertising, promotion and selling expenses decreased $23.1 million, or 21.7%,
to $83.3 million in 1996 from $106.4 million in 1995, primarily due to the
improvement in marketing focus to fewer programs with stronger impact resulting
in a $7.4 million decrease in advertising spending and $14.9 million in lower
selling costs associated with lower revenues. Facilities expenses remained
relatively constant for 1996 and 1995. Personnel expenses decreased $32.2
million, or 11.5%, to $248.7 million in 1996 from $280.9 million in 1995, $12.6
million of which was due to a substantial salary reduction resulting from a
decrease in the U.S. salaried workforce initiated in late 1995, $9.3 million of
which was due to a 1995 charge against earnings for the reduction of U.S.
salaried workforce and centralization of accounting functions, and approximately
$8.3 million of which was due to a reduction in rental volume and corresponding
variable labor costs. General and administrative expenses decreased $34.4
million, or 38.8%, to $54.2 million in 1996 from $88.6 million in 1995, due to
the reduction in salaried headcount, a continued emphasis on controlling
discretionary expenses and the impact of centralization charges recorded in
1995. Specifically, travel related expenses decreased $5.8 million, outside
professional services decreased $3.5 million, bad debt expense decreased $5.6
million, and the year to year impact of centralization charges decreased by $7.5
million. Intangible amortization expense remained relatively constant for 1996
and 1995.
INTEREST EXPENSE. Interest expense decreased $25.7 million, or 17.2%, to
$124.2 million for 1996 from $149.9 million in 1995. A reduction in the average
borrowing rate resulted in a $7.6 million decrease while all other changes,
largely lower borrowing levels, reflective of the reduction in average fleet
size and mix changes, resulted in a reduction of $18.1 million.
PROVISION FOR INCOME TAXES. The provision for income taxes increased to
$3.0 million for 1996 from $1.3 million in 1995 due to higher foreign income
taxes, primarily in the United Kingdom.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
GENERAL OPERATING RESULTS. BRACC had a net loss of $132.6 million for 1995
compared to net income of $1.1 million for 1994. Loss before income taxes was
$131.3 million for 1995 compared to income before income taxes of $5.1 million
for 1994. These losses were due to substantially higher operating costs and
greater interest expense which were not fully offset through higher revenue.
OPERATING REVENUES. Operating revenues increased by $37.7 million, or
3.3%, to $1,193.5 million in 1995 from $1,155.8 million in 1994. Vehicle rental
revenues increased $23.7 million, or 2.3% to $1,034.9 million in 1995 from
$1,011.2 million in 1994. This increase was due to a 3.0% increase in the daily
average rental rate, partially offset by a 1.1% reduction in vehicle rental
days. Retail car sales revenue increased $5.8 million, or 7.4%, to $83.8 million
for 1995 from $78.0 million for 1994, primarily due to a change to higher priced
units in the mix of vehicles sold. Royalty fees increased $4.7 million, or 8.9%,
to $57.9 million in 1995 from $53.2 million in 1994, primarily due to growth in
international markets. Other revenues increased $3.5 million, or 26.3%, to $16.9
million in 1995 from $13.4 million in 1994 largely due to improvements in credit
card processing income. The daily average rental rate increased to $39.58 in
1995 from $38.43 in 1994, an increase of 3.0%.
OPERATING EXPENSES. Operating expenses increased $129.2 million, or 12.4%
to $1,174.9 million in 1995 from $1,045.7 million in 1994. Vehicle depreciation
expense increased $66.3 million, or 25.8%, to $323.6 million in 1995 from $257.3
million in 1994, due to higher manufacturer depreciation rates for Program
Vehicles, a change in fleet mix to include more specialty vehicles and a 1.8%
increase in average fleet size. The higher manufacturer program rates resulted
in increased depreciation expense of approximately $59.9 million and the
remaining $6.4 million increase was primarily due to larger fleet size. Direct
vehicle and operating expenses increased $19.0 million, or 14.1%, to $153.1
million in 1995 from $134.1 million in 1994, primarily due to higher
salvage/wreck and theft expense, the change in fleet mix
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to include more luxury and specialty vehicles and a higher average fleet size.
Non-vehicle depreciation expense decreased $1.9 million, or 8.8%, to $19.5
million in 1995 from $21.4 million in 1994. Cost of vehicles sold at retail
increased $5.1 million, or 7.6%, to $72.4 million in 1995 from $67.3 million in
1994 reflecting a more costly mix of vehicles. Advertising, promotion and
selling expenses increased $6.7 million, or 6.7%, to $106.4 million in 1995 from
$99.7 million in 1994, primarily due to $2.2 million of higher selling costs
associated with higher revenues, $3.5 million of marketing costs for credential
reissuance in conjunction with the new corporate logo and the remainder due to
other net marketing expenditures, largely frequent flyer programs. Facilities
expenses increased $2.9 million, or 2.6%, to $113.3 million in 1995 from $110.4
million in 1994, due to minor increases in several areas, such as $2.5 million
in lease expense for rental and administrative facilities and $.5 million for
repairs and maintenance. Personnel expenses increased $11.5 million, or 4.3%, to
$280.9 million in 1995 from $269.4 million in 1994, largely due to a $9.3
million one-time charge taken in 1995 in conjunction with the reduction in the
U.S. salaried workforce and the centralization of accounting functions. General
and administrative expenses increased $19.5 million, or 28.2%, to $88.6 million
in 1995 from $69.1 million in 1994, due to a $5.3 million one-time restructuring
charge related to a reduction in BRACC's workforce in 1995 and centralization of
accounting functions, $3.0 million due to the non-recurrence of a legal
settlement in 1994 related to a contract dispute regarding the failed attempt to
design and build a multi-user reservation processing system, and increases in
other general expenses, including travel related costs of $2.0 million and bad
debt of $1.4 million. Intangible amortization expenses remained relatively
constant for 1995 and 1994.
INTEREST EXPENSE. Interest expense increased $44.9 million, or 42.8%, to
$149.9 million for 1995 from $105.0 million in 1994. An increase in the average
borrowing rate resulted in a $30.8 million increase while the remaining increase
of $14.1 million was largely due to higher borrowing levels reflective of the
increase in average fleet size and mix changes.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to
$1.3 million for 1995 from $4.0 million in 1994 primarily due to lower deferred
federal and foreign income taxes.
LIQUIDITY AND CAPITAL RESOURCES OF BRACC
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company -- Liquidity and Capital Resources".
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<PAGE> 47
BUSINESS
GENERAL
The Company and its franchisees operate the third largest worldwide general
use car and truck rental system, with approximately 3,200 locations and a peak
fleet size during 1996 of 266,000 cars and 18,000 trucks. The Budget System
includes locations in both the airport and local (downtown and suburban) markets
in all major metropolitan areas in the United States, in many other small and
mid-size U.S. markets and in more than 110 countries worldwide. Pro forma for
the Budget Acquisition, the Budget System included approximately 455
company-owned locations in the United States at December 31, 1996, accounting
for approximately 76% of 1996 U.S. system-wide revenues. In addition, Budget
franchisees operated approximately 500 royalty-paying franchise locations in the
United States at December 31, 1996. Budget is one of only three vehicle rental
systems that offer rental vehicles throughout the world under a single brand
name, with locations in Europe, Canada, Latin America, the Middle East,
Asia/Pacific and Africa. The Budget System currently maintains more local market
rental locations throughout the world than its major competitors. The Budget
System is also unique among major car rental systems in that it rents trucks in
most major markets worldwide. The Budget System's consumer truck rental fleet is
the fourth largest in the United States.
The Company is also one of the largest independent retailers of late model
vehicles in the United States, with 23 retail car sales facilities and pro forma
revenues of $246.9 million for 1996. The Company operates its retail car sales
facilities under the name "Budget Car Sales".
BACKGROUND
BRACC
In 1960, BRACC began franchising car and truck rental operations serving
the downtown and suburban areas of cities in the United States and Canada.
Budget established its first major airport location in 1967, but maintained a
marketing strategy of offering good value to price-sensitive personal renters.
Historically, BRACC operated the broadest distribution system in the industry,
with more full-service local market locations in the United States and worldwide
than its major competitors and the largest integrated system offering both cars
and trucks in most markets worldwide. During the 1980s, BRACC undertook a
strategic shift from being structured as a franchising company to functioning as
an operating company.
For the year ended December 31, 1996, BRACC's 304 company-owned locations
in the United States accounted for approximately 61.0% of the Budget System's
vehicle rental U.S. revenues, while its 70 company-owned locations outside the
United States accounted for approximately 8.5% of the Budget System's
international vehicle rental revenues. For the year ended December 31, 1996,
BRACC's company-owned locations accounted for approximately 38.5% of total
worldwide Budget System revenues. At December 31, 1996, Budget franchisees
(including TEAM) maintained 652 locations in the United States and 2,182
locations internationally.
TEAM
Prior to the Budget Acquisition, TEAM was the largest U.S. Budget
franchisee and was one of the largest independent retailers of late model
automobiles in the United States. TEAM became a publicly held corporation in
August 1994, with 23 locations in four franchise territories, and embarked on a
strategy to significantly expand its Budget franchise base by further
consolidating Budget franchise operations and to develop a branded retail car
sales operation within its Budget franchise territories. Since its initial
public offering, TEAM pursued an aggressive growth strategy in both its vehicle
rental and retail car sales operations. TEAM added an additional nine Budget
franchise territories in that period. With 152 locations as of December 31,
1996, TEAM accounted for approximately 14.8% of the Budget System's 1996 U.S.
revenues. Concurrently with the development of its Budget franchise business,
TEAM developed or acquired 11 retail car sales facilities.
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Sanford Miller (Chairman of the Board and Chief Executive Officer), John P.
Kennedy (Vice Chairman of the Board) and Jeffrey D. Congdon (Vice Chairman of
the Board and Chief Financial Officer) together have over 75 years of experience
in the vehicle rental business and had acquired and operated 54 Budget
franchises prior to the Budget Acquisition. In addition, Messrs. Miller and
Congdon together have over 25 years of experience operating retail car sales
facilities.
BUDGET GROUP
Budget Group consists of 455 company-owned locations in the United States,
including 21 of the 25 largest airport rental markets in the United States. Pro
forma for the Budget Acquisition, Budget Group accounted for approximately 76%
of the Budget System's 1996 U.S. system-wide revenues. Accordingly, the Budget
Acquisition marked a significant furtherance of the initiative undertaken by
BRACC approximately 10 years ago to make the transition from being a franchising
company to being an operating company, as well as furtherance of TEAM's strategy
of consolidating the Budget System. The Company believes that its increased
level of company-owned operations will enable it to improve the performance of
the Budget System and to compete more effectively in both the corporate and
consumer segments of the vehicle rental industry. The Company is managed by
officers having significant experience with BRACC and TEAM, who utilize
operating strategies and systems that have proven most effective for BRACC and
TEAM.
STRATEGY
Management's long-term strategy is to create an automotive services company
which leverages the asset base and expertise of the Company. The Company's
assets include a trade name that is recognized around the world; locations for
the rental, sale and maintenance of vehicles; a workforce that is proficient in
acquiring, financing, monitoring, maintaining and selling cars and trucks; and
advanced information systems to support these operations. Increasing the
utilization of these assets by acquiring automobile-related businesses would
reduce the Company's unit costs and increase profitability. In the near term,
management has developed a business strategy designed to increase the revenues
and improve the profitability of the Company. Key elements of this strategy are
as follows:
- Enhance the Budget brand
- Improve the performance of car rental operations
- Continue to expand retail car sales operations
- Expand truck rental operations
ENHANCE THE BUDGET BRAND
The Budget System is approximately 76% company-owned in the United States,
giving the Company a percentage of company-owned locations that management
believes is higher than many of its principal competitors. Management believes
this high level of corporate ownership is a competitive advantage in the
marketplace. It facilitates more consistent delivery of high quality services
and improved operations and communications, thereby strengthening the Budget
brand name among customers. Improved "front counter" systems will be designed to
present a more consistent image to Budget customers, both corporate and
individual, with an increased emphasis on quality of service and customer
satisfaction. The Company's structure facilitates national advertising and
marketing programs designed to increase the public's awareness of the Budget
brand. In addition, management believes that there will be continuing
opportunities to further consolidate the Budget System by acquiring additional
franchise operations, and that such consolidation will further strengthen the
Budget brand.
IMPROVE THE PERFORMANCE OF CAR RENTAL OPERATIONS
Historically, TEAM enhanced the profitability of its acquired franchise
territories by reducing operating costs and increasing rental revenue.
Similarly, in 1996, BRACC began initiatives to improve the
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performance of its company-owned operations. Management believes that the Budget
Acquisition has enabled the Company to combine key elements of the TEAM and
BRACC strategies to achieve even greater operating efficiencies. The Company
expects to undertake significant initiatives to (i) enhance the performance of
its U.S. car rental operations, (ii) capitalize on the increased level of
company-owned locations, (iii) increase its marketing to corporate accounts,
(iv) place increased emphasis on the leisure and local rental markets (including
its entry into the insurance replacement market), and (v) expand and improve
Budget's international operations.
ENHANCE THE PERFORMANCE OF U.S. CAR RENTAL OPERATIONS. TEAM and BRACC have
each successfully enhanced the profitability of their operations by
implementing cost reduction strategies. These strategies have included
centralizing certain corporate functions (such as credit card and warranty
processing), extending their fleet management practices in order to improve
fleet utilization and per unit cost versus yield, improving the timing and
processing of fleet deliveries and dispositions, reducing fleet downtime,
and improving fleet make/model composition to better match customer demand.
TEAM and BRACC have each also implemented cost management practices to
reduce overall personnel costs, lower vehicle maintenance expense and
damage repair costs and increase the effectiveness of their servicing
procedures. In order to increase revenues of its acquired operations, TEAM
and BRACC have utilized various yield management models to optimize pricing
and fleet utilization (for example, by tracking demand patterns and
allowing local managers to shift fleet inventory between locations). The
Company believes that it will be able to utilize various elements of these
operating strategies to enhance the performance of the combined TEAM/BRACC
operations.
CAPITALIZE ON THE INCREASED LEVEL OF COMPANY-OWNED LOCATIONS. Management
believes that the addition of the 151 locations that TEAM operated in its
13 franchise territories to the 304 locations operated by BRACC in the
United States will significantly improve the car rental operations of
Budget Group in the United States. Specifically, the increased level of
company-owned operations is expected to facilitate more consistent delivery
of services, uniform prices and communications to customers and allow the
Company to improve its yields and fleet utilization in many of its
locations. Management believes that the combination of TEAM and BRACC
operations in contiguous markets can significantly improve the marketing
programs and operating efficiency of the combined company. For example, the
Company expects to achieve increased efficiencies by integrating BRACC's
operations at Los Angeles International Airport with TEAM's operations
throughout Southern California, BRACC's operations in the New York City
area with TEAM's operation in Philadelphia, and BRACC's operation in Boston
with TEAM's operation in Hartford. Combining the operations of TEAM and
BRACC, the Company operates in 21 of the 25 largest airport rental markets
in the United States. The Company expects to manage the combined companies
more efficiently by integrating critical management information systems,
developing more comprehensive customer data and combining the two
companies' regional management organizations.
INCREASE MARKETING TO CORPORATE ACCOUNTS. Approximately one-half of the
Company's pro forma car rental revenue for 1996 was derived from corporate
accounts, with this customer base accounting for approximately one-half of
the Company's rentals from airport locations. Management believes that it
will be able to increase the contribution from corporate accounts, both in
absolute dollars and as a percentage of its car rental revenues, by
significantly increasing its marketing efforts to corporate accounts.
Specifically, management believes that middle market companies (companies
that would have accounts in the $500,000 to $1.0 million annual revenue
range) provide usage and yield characteristics that are favorable for the
Company. Management expects to broaden the Company's marketing effort to
this targeted customer base by adding additional marketing personnel and
believes that the improved consistency of service and pricing throughout
the Budget System, driven in significant part by the higher percentage of
company-owned locations, will be particularly important in marketing to
this customer base.
PLACE INCREASED EMPHASIS ON THE LEISURE AND LOCAL MARKETS. The Company
intends to place an increased emphasis on the leisure and local markets.
Budget's success in the leisure market has
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been driven by its reputation for offering vacation travelers favorable
rates on high quality cars and the strength of its operations at airports
in travel destinations. Management believes that corporate ownership of
Budget's operations in Florida, Hawaii, Southern California and Phoenix
will improve the Company's ability to market Budget's services to tour
operators, travel agents, travel wholesalers and cruise lines.
The local segment of the car rental industry consists of facilities located
near downtown or suburban areas and is directed toward individuals renting
cars while their automobiles are being repaired, for out of town travel or
for special occasions, and toward businesses seeking automobiles or vans
for occasional local use. Budget was founded in 1958 in order to serve this
segment, and enhanced its position through an affiliation with Sears,
Roebuck & Co. ("Sears") in 1970 (which allows Budget to rent cars and
trucks under the Sears name ("Sears Car and Truck Rental") at over 900
locations throughout the United States). The Company currently maintains
more full-service local market locations worldwide than its major
competitors. Maintaining a strong position in the local market
significantly improves Budget's fleet utilization, as cars may be shuttled
from airports to downtown and suburban locations for weekend use.
Management believes that it will be able to improve its performance in the
local market segment by adding locations in certain existing local markets,
which is expected to allow the Company to generate additional revenues with
relatively small increases in administrative overhead. Additionally, such
locations typically have less intense rate competition and fewer corporate
customers utilizing negotiated rate structures. Through its recent
acquisition of Premier, the Company expects to significantly improve its
participation in the insurance replacement market. Premier owns and
operates 9,000 vehicles from 101 locations in 13 major U.S. markets, and
will continue to operate under its own trade name.
EXPAND AND IMPROVE INTERNATIONAL OPERATIONS. Budget is one of only three
systems that offers rental vehicles throughout the world under a single
brand name and Budget is recognized as a market leader in several key
foreign markets, including Canada, Germany and many Latin American and
Caribbean countries. Management believes that the strength of the Budget
System in foreign markets has important value in name recognition and
serving the needs of local customers and international travelers. For 1996,
approximately 44.1% of the Budget System's worldwide revenues were derived
from its 2,252 locations in more than 110 countries. Company-owned
operations at international locations in the United Kingdom, France,
Switzerland, Australia and New Zealand accounted for approximately 8.5% of
the Budget System's 1996 international revenues, with the remainder
attributable to the operations of approximately 2,182 franchised locations.
Management believes that it will be able to improve the Company's
international operations by implementing programs through which
underperforming franchisees will be able to improve their operating
results. Management also believes that certain emerging markets, such as
the Pacific Rim and Southeast Asia, provide growth opportunities for the
Budget System, and that it will be able to add locations in these markets,
either directly or through franchisees.
CONTINUE TO 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. Management 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.
The Company's Principal Executive Officers have more than 25 years of
experience in acquiring and selling low-mileage, late model cars. The Company,
with 23 retail car sales facilities and pro forma car sales revenues of $246.9
million for 1996, is one of the largest independent retailers of late model cars
in the United States. Management believes that it will be able to improve the
performance of the acquired BRACC retail sales facilities by incorporating
certain systems that TEAM utilized in its retail car sales operations and that
it will be able to achieve efficiencies by combining and centralizing certain
functions.
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The Company plans to establish a nationally recognized and branded retail
car sales operation which will provide low mileage, late model cars to consumers
in a new car sales environment under the Budget Car Sales brand. Management
expects the Company to establish multiple sales facilities in many of its
markets, which will allow the Company to benefit from shared administration and
marketing programs with its vehicle rental business.
EXPAND TRUCK RENTAL OPERATIONS
With the fourth largest consumer truck rental fleet in the United States,
Budget is unique among major car rental systems in that it rents trucks to
consumers and commercial users in most major markets worldwide. Budget has long
been considered an innovator in the truck rental market, having introduced the
first all-diesel-equipped and all-automatic-transmission fleets for consumer
use, as well as four-door versions of moving trucks that provide seating for a
family or moving crew. TEAM implemented a strategy of expanding its truck rental
operations in its franchised territories, and management believes the Company
will be able to significantly expand Budget's truck rental business. Management
expects the Company to add truck rental locations in various markets,
particularly in conjunction with the addition of new local market locations.
Management believes that adding truck rental locations will leverage certain
fixed costs and increase consumer awareness of the Budget brand, while favorable
pricing trends in the truck rental market are expected to provide attractive
returns on invested capital.
THE BUDGET SYSTEM
The Company provides consistent system-wide services, a state-of-the-art
reservation system and other opportunities to all vehicle rental locations
within the Budget System. For 1996, pro forma for the consummation of the Budget
Acquisition, company-owned locations accounted for approximately 76% of the U.S.
revenues of the Budget System.
SYSTEM-WIDE SERVICES
The Company 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; (ix)
operation, training and support; (x) fleet purchasing programs; and (xi) a
company-owned fleet of cars and trucks for one-way rentals. In general, pursuant
to its agreements with its franchisees, the Company is required to expend a
certain percentage of franchise royalties that it receives on advertising and
promotion. In addition, the Company negotiates with automobile manufacturers to
develop vehicle acquisition and disposition programs that are available to
franchisees as well as to company-owned locations.
The Company facilitates one-way car rentals between approximately 325
selected company-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 the Company is dedicated to
supplement the one-way vehicle rental capacity of the participating locations.
This program enables the Budget System to operate more fully as an integrated
network of locations.
RESERVATIONS SYSTEM
The Company operates a state-of-the-art computerized reservation system
through WizCom. 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 a
24-hour basis, 365 days a year. The reservation centers utilize an extensive
database maintained on rates and vehicles available for nearly all Budget System
locations, a
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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, BRACC established a contractual relationship with Sears which
allows Budget operating locations to provide car and truck rental under the
Sears name. 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
approximately 900 Budget locations in the United States.
MANAGEMENT INTEGRATION
The Company is managed by a combination of managers from TEAM and BRACC.
Sanford Miller, the Chairman and Chief Executive Officer of TEAM prior to the
Budget Acquisition, is the Chairman and Chief Executive Officer of the Company.
The prior managements of TEAM and BRACC have been integrated to create an
effective and experienced management team for the Company which draws upon the
knowledge and strengths of the two organizations. The majority of the Company's
corporate functions continue to be managed by BRACC personnel. See "Management".
BRACC's primary corporate functions will be centralized in its worldwide
headquarters in Lisle, Illinois. TEAM previously maintained a decentralized
management structure of its day-to-day rental operations. As part of the Budget
Acquisition, TEAM's rental operations are being merged into BRACC's and
centralized to achieve cost savings.
RENTAL OPERATIONS
Budget rents a wide variety of automobiles and trucks, most of which
consist of the current and immediately preceding model years. Vehicle rentals
are generally made on a daily, weekly or monthly basis and generally include
unlimited mileage. Rental charges are computed on the basis of the length of the
rental or, in some cases, on the length of the rental plus a mileage charge.
Rates vary at different locations depending on the type of vehicle rented, the
local market and competitive and cost factors. Most rentals are made utilizing
rate plans under which the customer is responsible for gasoline used during the
rental. Budget also generally offers its customers the convenience of leaving a
rented vehicle at a Budget location in a city other than the one in which it was
rented, although, consistent with industry practices, a drop-off charge or
special intercity rate may be imposed.
The following table sets forth for the periods indicated the number of
owned and franchised locations of Budget in North America and at international
locations and certain other data of Budget Group:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1996
------- -------
<S> <C> <C>
Locations in operation:
United States:
BRACC-owned............................................ 311 304
TEAM-owned............................................. 133 152
Other franchisees...................................... 560 500
------- -------
Total U.S......................................... 1,004 956
International:
BRACC-owned............................................ 79 70
Franchisees............................................ 2,027 2,182
------- -------
Total International............................... 2,106 2,252
------- -------
Budget System................................ 3,110 3,208
Average fleet size(a)....................................... 233,081 235,874
</TABLE>
- ---------------
(a) Average fleet size is the number of vehicles (both cars and trucks) owned or
leased by Budget each day of the period divided by the number of days in the
period.
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NORTH AMERICAN OPERATIONS
At December 31, 1996, BRACC owned and operated 304 Budget locations in the
United States, and franchisees (including TEAM) owned and operated 652 Budget
locations in the United States and 390 Budget locations in Canada. Of the U.S.
facilities, nearly 300 primarily serve airport business and more than 650 serve
local market (downtown and suburban) locations. Budget's mix of business
consists of approximately 65% in the airport segment and 35% in the local
segment. In addition, at December 31, 1996, BRACC rented trucks at 151 of its
company-owned locations and TEAM rented trucks at 93 of its locations.
Budget is in many cases one of five to seven vehicle concessionaires at the
airports in which it operates. In general, concession fees for airport locations
are based on a percentage of total commissionable revenues (as determined by
each airport authority), subject to minimum annual guaranteed amounts.
Concessions are typically awarded by airport authorities every three to five
years based upon competitive bids. Budget's concession arrangements with the
various airport authorities generally impose certain minimum operating
requirements, provide for relocation in the event of future construction and
provide for abatement of the minimum annual guarantee in the event of extended
low passenger volume.
INTERNATIONAL OPERATIONS
At December 31, 1996, BRACC owned and operated 70 international Budget
locations, consisting of 36 European locations (including the Middle East and
Africa) and 34 locations in the Asia/Pacific region, and franchisees owned and
operated 2,182 international Budget locations, consisting of 1,140 European
locations (including the Middle East and Africa), 263 Latin American locations
and 389 locations in the Asia/Pacific region. Budget locations can be found in
more than 110 countries outside the United States. Budget is recognized as a
market leader in Canada, Germany and many Latin American and Caribbean
countries.
VAN POOLING OPERATIONS
Van Pool, the Company's commuter van pooling subsidiary, was acquired by
TEAM 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 at December
31, 1996 operated a fleet of approximately 3,250 passenger vans.
RENTAL VEHICLE PURCHASING
Budget participates in a variety of vehicle purchase programs with major
domestic and foreign vehicle manufacturers. On average during model year 1997,
73% of BRACC's vehicle purchases consisted of Ford vehicles, 6% of Toyota
vehicles and the remaining 16% of General Motors, Mazda, Hyundai and Chrysler
vehicles. These percentages vary among BRACC's operations and will most likely
change from year to year. The average price for automobiles purchased by BRACC
in 1996 for its rental fleet was approximately $18,300. On average during 1996,
29% of TEAM's automobile purchases consisted of Chrysler vehicles, 37% of Ford
vehicles and 21% of Nissan and Toyota vehicles. The average price for
automobiles purchased by TEAM in 1996 for its rental fleet was approximately
$18,100.
Budget's principal relationship has historically been with Ford, with an
emphasis on products from the Lincoln-Mercury Division of Ford. Concurrently
with the Budget Acquisition, the Company entered into a new ten-year Supply
Agreement with Ford. Under the new Supply Agreement, the Company agreed (i) to
purchase or lease at least 70% of the total number of vehicles leased or
purchased by it in each model year from Ford and (ii) to purchase or lease at
least 80,000 new Ford vehicles in each model year
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in the United States. Under the Supply Agreement, Ford and its affiliates are
required to offer to the Company and its affiliates and franchisees generally,
for each model year, vehicles and fleet programs at prices that are competitive
with the vehicles and fleet programs of other automobile manufacturers. See "The
Budget Acquisition -- Related Agreements -- Supply Agreement".
FLEET UTILIZATION AND SEASONALITY
Budget's business is subject to seasonal variations in customer demand,
with the summer vacation period representing the peak season for vehicle
rentals. The general seasonal variation in demand, along with more localized
changes in demand at each of the Company's locations, causes the Company to vary
its fleet size over the course of the year. For 1996, BRACC's average monthly
fleet size ranged from a low of 64,900 vehicles in January to a high of 88,600
vehicles in August. 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 73% in January to 83% in August and averaged
77% for 1996.
For 1996, TEAM's average monthly fleet size (excluding Van Pool) ranged
from a low of 10,694 vehicles in January to a high of 18,870 vehicles in July.
Fleet utilization ranged from 79% in June to 85% in August and averaged 81% for
1996.
RENTAL RELATED PRODUCTS
Although the dominant source of the Company's total revenue is time and
mileage charges from the rental of vehicles and franchise payments from its
franchisees, the Company also generates revenue from rental related products
such as loss damage waivers, personal accident insurance, personal effects
protection, additional liability insurance, other travel related insurance
coverages and travel related products. The travel related products from which
the Company generates revenue include vehicle upgrades, gasoline sales,
intercity drop-off charges and miscellaneous items such as baby seats, ski
racks, cellular phones and additional driver fees.
MARKETING
The Company's promotional and marketing activities are designed to promote
Budget as a value service provider and to promote brand loyalty. The Company has
a sales force of approximately 200 employees worldwide. Budget's national
advertising program is implemented through a variety of media, including
national and local television, radio, newspapers, magazines, airline ticket
jackets, airline in-flight magazines and strategically located billboards, an
Internet site, counter and store collateral materials and merchandise. The
Company also has cooperative advertising arrangements with airlines, hotels,
travel agency consortia and others in the travel industry. Budget participates
in a number of airline frequent flyer programs (including United Airlines,
Southwest Airlines, Alaska Airlines, Aeromexico and Lufthansa), as well as
certain hotel programs, theme park programs and credit card affinity programs.
Budget also has a frequent renter program, Awards Plus, which gives renters a
strong incentive to bring all of their car rental business to Budget. In
addition, the Company has contracts with a number of airlines, hotels and other
organizations pursuant to which such organizations agree to recommend Budget's
services during their reservation calls and to transfer interested customers to
a Budget reservation agent. In addition, in connection with the Budget
Acquisition, the Company has undertaken to carry out promotional programs that
feature and promote the rental of Ford vehicles. See "The Budget
Acquisition -- Related Agreements -- Advertising Agreement".
CUSTOMER SERVICE
Budget's commitment to delivering a consistently high level of customer
service is a critical element of its success strategy. Each month, over 3,000
Budget customers are randomly surveyed to measure service levels by location.
Budget identifies specific areas of achievement and opportunity from these
surveys. Areas of improvement are addressed on a system-wide level and standard
methods and measures are developed. To drive improvement, the service standards
are audited routinely by
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management and service delivery standards assessors. The major areas of these
assessments include: (i) speed of rental/return process including busing where
applicable, (ii) vehicle condition and availability, (iii) customer interaction
including helpfulness and courtesy and (iv) location image. In addition, Budget
utilizes a toll-free "800" number that allows customers to report problems
directly to the customer relations department. Monthly reports of the types and
number of complaints received are used in conjunction with the customer
satisfaction reports by location management as feedback of customer service
delivery. Furthermore, Budget participates in the annual J.D. Power and
Associates survey process to ensure that competitive levels of performance are
achieved.
INFORMATION TECHNOLOGY
The Company's information technology is designed to provide Budget
worldwide with high quality, cost-effective systems and services on a timely
basis. In late 1995, BRACC implemented its state-of-the-art reservation system,
which consists of a highly integrated mainframe system with an intelligent
workstation component for reservation agents, allowing them to access pertinent
information in a fast and user-friendly manner. The reservation system has
direct interfaces to the airline system and captures key corporate and customer
information.
The Company's rental counter and back-office system, BEST I, supports both
company-owned and franchisee operations. The Company's fleet system supports
fleet finance, dealership accounting and ordering for all brands of vehicles
including direct ordering lines to Ford, Toyota, Nissan and Mazda. The Company's
human resources, benefits and payroll interface is supported by a client-server
system that automatically feeds to an outsourced payroll system. The Company
intends to continue to enhance and consolidate its information technology
systems allowing Budget to deliver consistent customer service at all of its
locations.
VEHICLE RENTAL FACILITIES
The Company leases substantially all of its U.S. airport and local market
rental facilities and, pro forma for the Budget Acquisition, operated from 455
rental locations at December 31, 1996. 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. Each airport
facility includes vehicle storage areas, a vehicle maintenance facility, a car
wash, a refueling station and rental and return facilities. Local market rental
facilities generally consist of a limited parking facility and a rental and
return desk and are generally subject to fixed-term leases with renewal options.
Certain of these leases also have purchase options at the end of their terms.
FRANCHISING
Of Budget's 3,208 worldwide locations at December 31, 1996, 2,833 were
owned and operated by franchisees (including TEAM), with franchisees
representing 62% of system-wide revenues for 1996. As of June 30, 1997, BRACC
maintained over 800 separate franchise agreements with almost 600 franchisees.
BRACC has franchise locations in more than 110 countries worldwide. Franchised
locations range from large operations in major airport markets with fleet sizes
in excess of 4,000 vehicles and franchise territories within an entire country
to operations in small markets with fleets of fewer than 50 vehicles.
The Company considers its relationships with its franchisees to be
excellent. It works closely with franchise advisory councils in formulating and
implementing sales, advertising and promotion, and operating strategies and
meets regularly with these advisors and other franchisees at regional, national
and international meetings. The Company has an ongoing growth strategy of adding
new franchises worldwide when opportunities arise. Incremental franchises
provide the Company with a source of high margin revenue as there are relatively
few additional fixed costs associated with fees paid by new franchisees to the
Company.
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The Company's relationship with each Budget franchisee is governed by
franchise agreements (the "Franchise Agreements"), which grant to the
franchisees certain exclusive territories in which to operate the Budget vehicle
rental business. The Franchise Agreements provide the Company with significant
rights regarding the business and operations of each franchise and impose
restrictions on the transfer of the franchise and on the transfer of the
franchisee's capital stock without the consent of the Company. Each franchisee
is required to operate each of its franchises in accordance with certain
standards contained in the Budget operating manual (the "Operating Manual"). The
Company has the right to monitor the operations of franchisees and any default
by a franchisee under a Franchise Agreement or the Operating Manual may give the
Company the right to terminate the underlying franchise.
In general, the Franchise Agreements grant the franchisees the exclusive
right to operate a Budget Rent a Car and/or Budget Rent a Truck business in a
particular geographic area for a stated period. Franchise Agreements generally
provide for an unlimited number of renewal terms. Upon renewal, the terms and
conditions of Franchise Agreements (other than with respect to royalty fees) may
be amended from those contained in the existing Franchise Agreements. The
standard royalty fee payable to the Company under Franchise Agreements is 7.5%
of gross rental revenues in the United States and 5% of gross rental revenues in
international markets, but certain of the Company franchisees have franchise
agreements with different royalty fee structures.
Pursuant to each Franchise Agreement, the franchisee must meet certain
guidelines relating to the number of rental offices in the franchised territory,
the number of vehicles maintained for rental and the amount of advertising and
promotion expenditures. In general, each Franchise Agreement provides that the
franchisee shall not engage in any other vehicle rental business within the
franchise territory during the term of such agreement and for 12 months
thereafter. In addition, franchisees agree not to use the word "Budget" or any
other Budget trademark other than in their vehicle rental business.
RENTAL VEHICLE DISPOSITION
BRACC's operating strategy was to maintain its fleet at an average age of
four months or less, and TEAM's operating strategy was to maintain its fleet at
an average age of six months or less. Approximately 85% of the vehicles
purchased by BRACC and approximately 89% of the vehicles purchased by TEAM in
model year 1997 were Program Vehicles. These programs currently require that the
Company maintain Program Vehicles in its fleet for a minimum number of months
and impose numerous return conditions, including those related to mileage and
repair condition. More than 97% of the Program Vehicles purchased by Budget
Group and scheduled to be returned in 1996 were eligible for return. At the time
of return to the manufacturer, the Company receives the price guaranteed at the
time of purchase and are thus protected from fluctuations in the prices of
previously-owned vehicles in the wholesale market at the time of disposition.
The future percentages of Program Vehicles in the Company's fleet will be
dependent on the availability and attractiveness of manufacturers' repurchase
programs, over which the Company has no control. See "Risk Factors -- Potential
Changes in Manufacturers' Repurchase Programs".
In addition to manufacturers' repurchase programs, the Company disposes of
its rental fleet through automobile auctions, sales to wholesalers and internal
retail car sales operations. While the disposal of rental vehicles through
internal retail car sales operations has been limited to date, management
believes that such dispositions may increase as Budget retail car sales
operations continue to grow and as management evaluates the mix of the Company's
Program Vehicles and vehicles not subject to manufacturers' repurchase programs.
RETAIL CAR SALES OPERATIONS
The Company sells cars, sport utility vehicles and trucks through its
retail car sales facilities and is one of the largest independent retailers of
late model vehicles in the United States. Immediately prior to the Budget
Acquisition, TEAM operated 11 retail car sales facilities, with 1996 revenues of
approximately $134.1 million, and BRACC operated 11 retail car sales facilities,
with 1996 revenues of approximately
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$91.5 million. Since the Budget Acquisition, the Company has opened three new
retail car sales facilities and consolidated four of the facilities previously
operated by BRACC into two facilities.
RETAIL CAR SALES INVENTORY
In 1996, the vehicles sold at Budget retail car sales facilities consisted
primarily of 1996 model year automobiles and passenger vans, with some 1995
model year vehicles and very few 1994 model year vehicles. TEAM and BRACC
historically acquired most of their retail car sales inventory at auctions,
although they have acquired some cars from their rental fleets. In the future,
the Company expects to increase its acquisitions of cars from the disposition of
cars used in its rental fleet 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.
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. To supplement its sale of vehicles, the Company sells
extended service contracts and related consumer products to their customers.
RETAIL CAR SALES/SERVICE FACILITIES
Each of the retail car sales facilities originally operated by TEAM
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 these 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 for 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. The
retail car sales facilities originally operated by BRACC are typically smaller
than TEAM's car sales facilities and do not include service departments.
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. Budget's main competitors in the rental market are Hertz,
Avis, Alamo, National and Enterprise. In consumer truck rentals, Budget faces
competition from U-Haul, Ryder and Penske. There have been occasions when the
major vehicle rental companies have been adversely affected by industry-wide
price cutting, and TEAM and BRACC have on such occasions lowered their prices in
response. The Company will not generally be able to unilaterally raise its
prices or to maintain its prices in times of industry price cutting.
The retail car sales business is also characterized by intense competition
from a range of regional and local car dealerships and other retailers of
previously-owned vehicles. Management believes that the Company 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
Budget Group with significant additional competition. See "Risk Factors --
Competition".
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INSURANCE
The TEAM car rental locations have insurance coverage of $1 million with a
$500,000 self-insured retention with respect to bodily injury and property
damage claims arising from the use of its vehicles, with the exception of its
California operations, where it has a $1 million self-insured retention, and its
New York operations, where it has first dollar insurance coverage for renters
age 25 or older. Budget Car Sales has insurance coverage of $1 million with a
$25,000 self-insured retention with respect to bodily injury, personal injury
and property damage claims arising from its garage operations. There is also
general liability coverage of $1 million per occurrence with a $2 million
aggregate coverage with no self-insured retention. Van Pool has insurance
coverage of $1 million with a $500,000 self-insured retention with respect to
bodily injury and property damage claims arising from the use of its vehicles.
There is a $100 million umbrella policy for all liability coverages. The above
operations have workers' compensation insurance with a $250,000 per person and a
$750,000 aggregate self-insured retention.
BRACC has a $2 million per occurrence self-insured retention in the U.S.,
with the exception of its Manhattan, New York operations, where it has first
dollar insurance coverage for renters age 25 or older with respect to bodily
injury and property damage claims. BRACC's international operations have the
following self-insured retention: $1 million in the United Kingdom, no retention
in France, $1,000 in Australia and in Switzerland and $5,000 in New Zealand,
with respect to bodily injury and property damage claims. BRACC has a $2 million
self-insured retention on its general liability coverage. There is a $100
million umbrella policy for all liability coverages. BRACC has workers'
compensation insurance with a $500,000 per person and a $6.5 million aggregate
self-insured retention.
Premier has a $2 million per occurrence, first dollar insurance policy for
bodily injury and property damage claims. There is a policy for $1 million per
occurrence and a $2 million aggregate deductible with no retention and a $100
million umbrella policy for all liability coverages.
Budget Group has $100 million property coverage with a $1.5 million per
occurrence and a $2.5 million aggregate deductible along with a $250,000
maintenance deductible for each additional occurrence resulting in losses in
excess of $2.5 million aggregate deductible. In addition, the Company has a $25
million directors and officers liability policy.
REGULATORY AND ENVIRONMENTAL MATTERS
The Company is subject to foreign, 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.
MATTERS AFFECTING THE VEHICLE RENTAL INDUSTRY
Approximately 7.0% and 6.8% of the 1996 car rental revenues of TEAM and
BRACC, respectively, were generated from the sale of loss damage waivers. The
United States House of Representatives has from time to time contemplated
legislation that would regulate the conditions under which loss damage waivers
may be sold by car rental companies. For example, in January 1995, a bill was
introduced in the United States House of Representatives which seeks to prohibit
the imposition of liability on renters for loss of, or damage to, rented
vehicles, except in certain circumstances, and, if passed, would prohibit the
sale of loss damage waivers. To date, no action has been taken on this bill. In
addition, approximately 40 states have considered legislation affecting the sale
of loss damage waivers. To date, 18 of those states have enacted legislation
requiring disclosure to each customer at the time of rental that a loss damage
waiver may not be necessary; certain states have enacted legislation limiting
rental car companies' right to offer loss damage waivers for sale and limiting
potential customer liability to specified amounts; and other states have capped
the rates that may be charged for loss damage waivers to stated amounts per day.
Adoption of national or additional state legislation limiting the sale, or
capping the rates, of loss damage waivers could further restrict sales of this
product, and additional limitations on potential customer liability could
increase costs to the Company. Certain states currently make vehicle owners
(including vehicle rental companies) vicariously liable for the actions of any
person lawfully driving an
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owned vehicle, regardless of fault. Vehicle rental companies are also subject to
various federal, state and local consumer protection laws and regulations
including those relating to advertising and disclosure of charges to customers.
The National Association of Attorneys General has promulgated suggested
guidelines for car rental advertisements.
ENVIRONMENTAL 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 waste materials. Approximately 170 of the
Company's locations contain petroleum products stored in underground or
aboveground tanks. The Company conducts environmental compliance programs
designed to maintain compliance with applicable technical and operational
requirements, including periodic integrity testing of underground storage tanks
and providing financial assurance for remediation of spills or releases. The
Company believes that its operations currently are in compliance, in all
material respects, with such regulatory requirements. However, the Company, as
well as those competing entities which own or operate underground storage tanks,
must achieve compliance with certain Federal underground storage tank
requirements by 1998. The Company believes that the remaining costs of complying
with these requirements for 1997 and 1998 will be approximately $3 million.
The historical and current uses of the Company's facilities may have
resulted in spills or releases of various hazardous materials or wastes or
petroleum products ("Hazardous Substances") which now, or in the future, could
require remediation. The Company also may be subject to requirements related to
remediation of Hazardous Substances that have been released to the environment
at properties they own or operate, or owned or operated in the past, or at
properties to which they send, or have sent, Hazardous Substances for treatment
or disposal. Such remediation requirements generally are imposed without regard
to fault, and liability for any required environmental remediation can be
substantial. The Company may be eligible for reimbursement or payment of
remediation costs associated with releases from registered underground storage
tanks in states that have established funds to assist in the payment of such
remediation costs. Subject to certain deductibles, the availability of funds,
the compliance status of the tanks and the nature of the release, these tank
funds may be available to the Company for use in remediating releases from their
tank systems.
Certain of the TEAM locations 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 acquisition of franchise territories in Philadelphia, Pittsburgh and
Cincinnati, the seller, Chrysler Credit Corporation, Inc. ("CCC"), agreed to
provide up to $873,750 through 1997 for remediation activities at sites in those
areas shown to be impaired by assessments performed under the supervision of
TEAM. Although the ultimate cost of these remediation activities is currently
unknown, management believes that the amount of funding to be provided by CCC
will be sufficient to cover the cost of these remediation activities.
Approximately 140 BRACC-owned rental facilities contain underground storage
tanks. In connection with the Budget Acquisition, Ford has agreed subject to
certain limitations to indemnify the Company against losses incurred by the
Company arising out of or resulting from breaches by BRACC of BRACC
representations and warranties in its Stock Purchase Agreement (including those
relating to environmental matters), to the extent such losses are not covered by
an insurance policy or a reserve established by BRACC, relating to any action by
a third party in connection with environmental matters. Ford's indemnity
obligation for environmental and certain other matters is capped at $40 million.
However, Ford is not required to indemnify the Company unless such loss exceeds
$15,000 and the breach of all representations and warranties (including those
relating to environmental matters) has resulted in aggregate losses in excess of
$2.0 million, nor is Ford required to pay the first $2.0 million of such
aggregate losses (including those relating to environmental matters).
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Although the potential cost of any necessary remediation at the TEAM and
BRACC facilities is not precisely known, it is not expected to exceed $5 million
over the next three to five years.
See "Risk Factors -- Costs of Regulatory and Environmental Compliance".
FRANCHISE MATTERS
As a franchisor, BRACC is subject to federal, state and foreign laws
regulating various aspects of franchise operations and sales. These laws impose
registration and disclosure requirements on franchisors in the offer and sale of
franchises and, in certain states, also apply substantive standards to the
relationship between the franchisor and the franchisee, including those
pertaining to default, termination and nonrenewal of franchises.
OTHER MATTERS
Regulations enacted by various federal and state authorities affect the
Company's business. The financing activities of the Company's retail car sales
operations are subject to federal truth in lending, consumer leasing and equal
credit opportunity regulations, as well as state and local motor vehicle finance
laws, installment finance laws, insurance laws, usury laws, installment sales
laws and other consumer protection regulations.
LEGAL MATTERS
From time to time, the Company is subject to routine litigation incidental
to its business. Recently, the Company terminated the franchise arrangement of
its franchisee for Germany based on alleged violations of the terms of the
underlying franchise agreement. Such termination is being contested by the
franchisee. The Company intends to seek to replace such franchisee with a new
franchisee and/or company-owned locations. The Company is not currently involved
in any legal proceeding which it believes would have a material adverse effect
upon its financial condition or results of operations.
EMPLOYEES
At June 30, 1997, the Company had approximately 12,700 employees, including
part-time and "on call" employees who shuttle vehicles between locations. At
June 30, 1997, approximately 1,200 employees in various locations throughout the
United States were subject to collective bargaining agreements. These collective
bargaining agreements expire between 1997 and 1999.
The Company believes that its employee relations are good.
TRADEMARKS
The Company owns the trademarks Budget[R] and Budget Rent a Car[R], which
have been registered with the United States Patent and Trademark Office. The
Company considers its name and logo rights to be an important part of its
business.
HEADQUARTERS
The Company's headquarters facility consists of a 2,500 square foot leased
office in Daytona Beach, Florida. Other significant properties include 149,088
square feet of leased office space plus 11,400 square feet of space for a data
center in Lisle, Illinois, a suburb of Chicago, a 69,300 square foot
reservations center in Carrollton, Texas, which is owned by the Company, a
61,168 square foot leased administrative center in Orlando, Florida, and a
21,600 square foot leased international headquarters facility in Hemel
Hempstead, England, a suburb of London. Management believes that these
facilities are sufficient for the needs of the Company.
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THE BUDGET ACQUISITION
GENERAL
On April 29, 1997, TEAM acquired the capital stock of BRACC pursuant to the
terms of the Stock Purchase Agreements. The material terms of the Budget
Acquisition are described below.
TERMS OF THE STOCK PURCHASE AGREEMENTS
CONSIDERATION
The consideration paid by TEAM pursuant to the Stock Purchase Agreements
consisted of (i) approximately $275.0 million cash and (ii) the issuance to Ford
of 4,500 shares of the newly created Series A Convertible Preferred Stock. Each
share of Series A Convertible Preferred Stock is non-voting, does not carry a
dividend and is convertible into 1,000 shares of Class A Common Stock. In
addition, TEAM purchased approximately $95.2 million of the currently
outstanding indebtedness of BRACC to Ford and Ford canceled an additional $134.1
million of outstanding BRACC indebtedness. TEAM also refinanced approximately
$870.7 million of indebtedness outstanding primarily under BRACC's then-existing
fleet financing facilities.
SPECIAL BONUS PROGRAM
Pursuant to the Stock Purchase Agreements, in connection with the Budget
Acquisition, Ford contributed $2.4 million in cash to the Company in connection
with the establishment of the Special Bonus Program providing for bonus payments
to BRACC employees. As part of the Special Bonus Program, effective April 29,
1997, the Company granted options to purchase an aggregate of 440,000 shares of
Class A Common Stock (the "Special Bonus Options") to approximately 4,750 BRACC
employees under its 1994 Option Plan. See "Management -- Benefit Plans -- 1994
Option Plan". The Company also made cash payments aggregating $316,250 to former
officers of BRACC. The Special Bonus Options, together with the cash payments to
former officers, had an aggregate value of $4.8 million.
INDEMNIFICATION
Under the terms of the Stock Purchase Agreements, subject to certain
limitations described below, Ford has agreed to indemnify the Company against
losses arising out of or resulting from (a) any breach by Ford of a
representation or warranty contained in the Stock Purchase Agreements, (b) any
breach by BRACC of any BRACC representation or warranty (without giving effect
(other than with respect to representations on environmental liabilities) to any
exception contained therein for matters that would or would not, as the case may
be, have a material adverse effect on BRACC), (c) any breach by the common
stockholder of BRACC of a representation, warranty or covenant contained in its
Stock Purchase Agreement or (d) any failure by Ford to perform any agreement or
covenant contained in the Stock Purchase Agreements. Ford will not be required
to indemnify the Company for any losses except to the extent that (i) the breach
of the particular representations and warranties as to which indemnification is
sought has resulted in losses, individually, in excess of $15,000 and (ii) the
breach of all such representations and warranties as to which indemnification is
sought has resulted in aggregate losses in excess of $2.0 million (subject to
limited exceptions with respect to tax and environmental matters). Ford will
not, in any event, be required to pay (x) the first $2.0 million of losses
incurred by the Company or (y) more than $40.0 million for all losses of the
Company under the Stock Purchase Agreements or otherwise. The $40.0 million
limitation does not apply with respect to any claim for indemnification in
respect of a breach by BRACC of its representations and warranties with respect
to employee programs and taxes. Claims for breaches of representations and
warranties must be brought prior to the first anniversary of the closing date of
the Budget Acquisition (subject to certain limited exceptions, including
representations with respect to tax, environmental and employee benefit
matters).
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The Company has agreed to indemnify Ford against, and agreed to protect,
save and keep harmless Ford from payment of, and assumed liability for the
payment of, all losses arising out of or resulting from (i) any breach by the
Company of a representation or warranty contained in the Stock Purchase
Agreements or (ii) any failure by the Company to perform any agreement or
covenant contained in the Stock Purchase Agreements.
PREFERRED STOCKHOLDERS AGREEMENT
In connection with the consummation of the Budget Acquisition, Ford and the
Company entered into the Preferred Stockholders Agreement (the "Preferred
Stockholders Agreement"). Pursuant to the terms of the Preferred Stockholders
Agreement, Ford has agreed that, during the period commencing on April 29, 1997
and terminating on the first anniversary of such closing date, Ford and its
affiliates will not, directly or indirectly, (i) purchase or otherwise acquire,
or propose or offer to purchase or otherwise acquire, any equity securities of
the Company if, immediately after such purchase or acquisition, Ford's equity
interest in the Company would equal or exceed the equity interest of Ford in
TEAM as of the closing date of the Budget Acquisition, or (ii) propose or offer
to enter into certain Business Combinations (the "Standstill Agreement").
"Business Combination" means any one of the following transactions: (i) any
merger or consolidation of BRACC or any subsidiary of BRACC with Ford or any
affiliate of Ford; (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition by BRACC in one or a series of transactions to or with Ford or
any affiliate of Ford of all or a substantial part of the consolidated assets of
BRACC; (iii) the adoption of any plan or proposal for the liquidation or
dissolution of BRACC proposed by or on behalf of Ford or any affiliate of Ford;
or (iv) any reclassification of securities, recapitalization of BRACC or any
merger or consolidation of BRACC with any subsidiary of BRACC or any other
transaction to which BRACC is a party which has the effect of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of BRACC or any subsidiary of BRACC which is owned by
Ford or any affiliate of Ford. The Standstill Agreement will not apply during
any period in which Ford's equity interest in the Company is less than ten
percent, to any issuance and sale of new equity securities by the Company to
Ford or any Ford affiliate, or to certain other permitted acquisition
transactions. Additionally, Ford has agreed that it will not, directly or
indirectly, sell, transfer or otherwise dispose of any equity securities of the
Company beneficially owned by Ford except pursuant to a registered underwritten
public offering, pursuant to an applicable exemption from the registration
requirements of the Securities Act, to the Company or a subsidiary thereof, or
to a Ford affiliate. The Company has agreed that, during the period beginning on
the date of the Preferred Stockholders Agreement and ending on the earliest of
(i) nine months following the date thereof, (ii) the date on which Ford's equity
interest in the Company is less than 50% of its equity interest as of the
closing date of the Budget Acquisition and (iii) if, on the date eight months
from the date of the Preferred Stockholders Agreement, there is not pending a
request for registration pursuant to Ford's demand registration rights
(including a request in connection with which securities registered pursuant to
a registration statement in connection with a Ford demand registration request
have not all been offered or fully distributed), then, on the eight-month
anniversary of the closing date of the Budget Acquisition, the Company will not
(x) issue or sell equity securities of the Company (subject to certain
exceptions), (y) acquire control of any person or assets or business for cash
consideration in excess of $20 million or (z) make any acquisition in a
transaction involving equity securities of the Company (subject to certain
exceptions) without the written consent of Ford. The Offering is being conducted
pursuant to Ford's exercise of certain registration rights with respect to the
equity securities of the Company held by Ford and its affiliates, and the
Standstill Agreement and the restrictions on the Company described in the
preceding sentence will terminate upon completion of the Offering.
RELATED AGREEMENTS
SUPPLY AGREEMENT
Concurrently with the consummation of the Budget Acquisition, BRACC entered
into a supply agreement with Ford (the "Supply Agreement"). Under the terms of
the Supply Agreement, the
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<PAGE> 63
Company agreed to purchase or lease Ford vehicles in such quantity in the United
States, Canada and other countries outside the European Union such that the
percentage of Ford vehicles purchased or leased in each country will be at least
70% of the total number of vehicles leased or purchased in each model year by
BRACC and its affiliates. In the United States, BRACC and its affiliates and
franchisees will purchase or lease at least 80,000 Ford vehicles in each model
year. Under the terms of the Supply Agreement, Ford and its affiliates agreed to
offer to the Company and its affiliates and franchisees generally, for each
model year, vehicles and fleet programs that are competitive with the vehicles
and fleet programs of other automobile manufacturers. The Supply Agreement
specifies that "competitive" shall be determined by comparison with the vehicles
and fleet programs offered by other automobile manufacturers as to price,
delivery dates, quality, durability, design, reputation, suitability for the
Budget business, model availability, guaranteed depreciation, resale value, turn
back costs and other repurchase terms. Ford also agreed to make reasonable
allocations of Ford vehicles available to BRACC and its affiliates and
franchisees, with such allocation in the United States in any model year to
constitute at least 80,000 vehicles. The Supply Agreement will be effective from
September 1, 1997 through August 31, 2007, and is subject to exceptions and
revisions upon the occurrence of force majeure events.
Under the terms of the Supply Agreement, the Company agreed to pay Ford, on
September 1, 1998 and on each anniversary through September 1, 2004, an annual
royalty equal to the greater of (i) one percent of net vehicle revenue of BRACC
locations prior to the Budget Acquisition for the prior model year, or (ii) a
specified minimum amount (equal to $9.9 million for the September 1, 1998 annual
royalty payment and subject to adjustment for each annual period thereafter,
based upon changes in the consumer price index). The minimum royalty payable
with respect to each model year will be reduced by a stated amount for each Ford
vehicle purchased by the Company and its affiliates and franchisees in excess of
123,000 Ford vehicles. The aggregate of all royalties paid to Ford over the term
of the Supply Agreement is subject to a limit of $100.0 million.
ADVERTISING AGREEMENT
Concurrently with the consummation of the Budget Acquisition, the Company
entered into a ten-year advertising agreement with Ford (the "Advertising
Agreement") under which the Company has undertaken to carry out promotional
programs that feature and promote the rental of Ford vehicles. Such promotional
programs include a wide variety of advertising and promotional activities to
promote Ford products. Under the terms of the Advertising Agreement, Ford will
pay to the Company for such advertising and promotional activities a stated base
amount for each model year with an annual consumer price index adjustment. The
base amount is fixed for the first five model years (beginning with model year
1998) and Ford and the Company agree to negotiate in good faith to determine the
base amount for the last five years of the Advertising Agreement. Ford will not
be required to pay the amount specified under the Advertising Agreement for any
model year if the percentage of Ford vehicles acquired during the model year
falls below 55%, subject to certain exceptions set forth in the Advertising
Agreement, and will be required to pay more than the base amount if the
percentage of Ford vehicles acquired during the model year exceeds 55%. Payments
by Ford under the Advertising Agreement are also subject to reduction if the
total of Ford vehicles acquired in any model year falls below the total of Ford
vehicles acquired in model year 1997.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
Company's executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ---- --- --------------------------
<S> <C> <C>
Sanford Miller.................................. 44 Chairman of the Board of Directors, Chief
Executive Officer and Director
John P. Kennedy................................. 52 Vice Chairman of the Board of Directors and
Director
Jeffrey D. Congdon.............................. 54 Vice Chairman of the Board of Directors, Chief
Financial Officer and Director
Robert L. Aprati................................ 53 Executive Vice President, General Counsel and
Secretary
Scott R. White.................................. 33 Executive Vice President, Corporate
Development
Ronald D. Agronin............................... 59 Director
James F. Calvano................................ 60 Director
Martin P. Gregor................................ 34 Director
Alan D. Liker................................... 59 Director
Jeffrey R. Mirkin............................... 44 Director
Dr. Stephen L. Weber............................ 55 Director
</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.
Sanford Miller has been the Chairman of the Board of Directors and Chief
Executive Officer of the Company since April 1994. From August 1991 to 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 to
August 1994, was Vice President of Capital City Leasing, Inc. ("Capital City"),
which operated the Richmond, Virginia Budget franchise. From 1989 to 1991, Mr.
Miller served as Director of Marketing, Special Accounts for BRACC. 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
BRACC in 1989. From 1979 to 1981, he was a North East Regional Field Operations
Manager for BRACC. 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.
("MoneyGram") and Colonial Bank of Volusia County. Mr. Miller is the first
cousin of Mr. Agronin.
John P. Kennedy has been Vice Chairman of the Board of Directors since
April 1997 and was President, Chief Operating Officer and a director of the
Company from April 1994 to April 1997. From November 1991 to August 1994, he was
President of Metro West, Inc., whose wholly owned subsidiary previously owned
the Company's San Diego airport operations. From September 1989 to 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 as Vice President of Operations.
Jeffrey D. Congdon has been the Chief Financial Officer and a director of
the Company since April 1994 and was elected Vice Chairman of the Board of
Directors in April 1997. 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 BRACC in 1989. From 1982 to 1996, Mr. Congdon owned
and operated retail new and/or used car sales operations in Indianapolis,
Indiana.
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Robert L. Aprati has been Executive Vice President, General Counsel and
Secretary of the Company since August 1997, was Senior Vice President, General
Counsel and Secretary of BRACC from January 1988 to July 1997 and was Vice
President, General Counsel and Secretary of BRACC from September 1978 to January
1988. Mr. Aprati has been a long-standing director, and currently is President,
of the American Car Rental Association.
Scott R. White has been Executive Vice President, Corporate Development of
the Company since February 1997. From August 1992 to February 1997, he worked in
the Investment Banking Department of Credit Suisse First Boston Corporation,
most recently as a Vice President. Mr. White received his J.D. degree from the
University of Texas School of Law in May 1992 and is a member of the State Bar
of Texas. In addition, he was a Financial Analyst at The First Boston
Corporation from July 1986 to July 1989.
Ronald D. Agronin was elected as a director of the Company in April 1994.
Since 1993, Mr. Agronin has served as Vice Chairman of Black Clawson Company
("Black Clawson"), a manufacturer of paper making machinery, and as President
and Chief Executive Officer of United Container Machinery, Inc. ("United
Container Machinery"), a corrugating machinery manufacturer. He served as
Executive Vice President and Chief Operating Officer of Black Clawson from 1987
to 1993. He currently serves as a director of Black Clawson and United Container
Machinery. Mr. Agronin is the first cousin of Mr. Miller.
James F. Calvano was elected as a director of the Company in August 1994.
Since October 1996, Mr. Calvano has been the Chairman and Chief Executive
Officer of MoneyGram, a provider of electronic money transfer services, and from
February 1996 to October 1996, he was President and Chief Executive Officer of
MoneyGram. From February 1995 to February 1996, he was Executive Vice President
of Marketing for Travelers Group, a subsidiary of Travelers, Inc. From November
1993 to February 1995, he was Chief Administrative Officer of Travelers
Insurance Companies. From June 1991 to 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 to
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 to 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.
Martin P. Gregor was elected as a director of the Company in December 1996.
Mr. Gregor serves as a financial advisor to many public and private
corporations. Mr. Gregor is a Managing Director of McDonald & Company
Securities, Inc., a position he has held since June 1997, and has served as
Resident Manager of the Indianapolis North office of that firm since December
1989.
Alan D. Liker was elected as a director of the Company in 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, a licensee of BRACC
and, through its wholly owned subsidiary, an operator of Budget locations in
Southern California 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 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".
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<PAGE> 66
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 BRACC, and, through its wholly owned subsidiary, an operator of Budget
locations in Southern California. See "Certain Transactions".
Dr. Stephen L. Weber was elected as a director of the Company in April
1994. Since June 1996, Dr. Weber has been the President of San Diego State
University. From August 1995 to June 1996, he was the Interim Provost at the
State University of New York System Office. From 1988 to June 1996, he was
President of State University of New York at Oswego.
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
$18,000 and participate in the 1994 Directors' Stock Option Plan (as hereinafter
defined). 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 Company's acquisition of the Los Angeles, California
Budget franchise (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 designated by SoCal and thereafter
elected to the Board of Directors of the Company. Following the Offering, SoCal
will own 470,000 shares of Class A Common Stock.
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<PAGE> 67
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
the other executive officers of the Company whose salary and bonus exceeded
$100,000 for 1996 (the "Named Executive Officers").
<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........................ 1996 $208,250 $ -- 60,000
Chairman of the Board and Chief 1995 $183,667 $ -- 30,000
Executive Officer 1994 $ 91,108(1) $14,067(2) --
John P. Kennedy....................... 1996 $197,500 $ -- 52,000
Vice Chairman of the Board 1995 $173,333 $ -- 25,000
of Directors 1994 $ 94,558 $ -- --
Jeffrey D. Congdon.................... 1996 $197,292 $ -- 52,000
Vice Chairman of the Board 1995 $173,333 $ -- 25,000
of Directors and Chief Financial 1994 $ 26,250(3) $ -- --
Officer
</TABLE>
- ---------------
(1) Does not include $6,924 of cash dividends paid by Tranex and Capital City to
Mr. Miller in 1994.
(2) Other annual compensation consists of $12,476 of payments made by the
Company with respect to vehicles used by Mr. Miller in 1994 and $1,591 of
gasoline expenses in connection with the use of these vehicles in 1994.
(3) Represents salary for the period from August 24, 1994 through December 31,
1994.
OPTION GRANTS DURING 1996 AND YEAR END OPTION VALUES
The following table describes the stock options granted to the Named
Executive Officers of the Company during 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
-------------------------------------------------------- ------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(A) FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ---------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mr. Miller........... 60,000 13.3% $11.25 04/15/06 $424,504 $1,075,776
Mr. Kennedy.......... 52,000 10.4 11.25 04/15/06 367,906 932,314
Mr. Congdon.......... 52,000 10.4 11.25 04/15/06 367,906 932,314
</TABLE>
- ---------------
(a) Represents options to purchase shares of Class B Common Stock.
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The following table describes the value of unexercised options that were
held by the Named Executive Officers of the Company as of December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1996 AT DECEMBER 31, 1996(A)
--------------------------------- ---------------------------------
NAME EXERCISABLE(B) UNEXERCISABLE(C) EXERCISABLE(B) UNEXERCISABLE(C)
- ---- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Mr. Miller........................ 30,000 60,000 $198,750 $292,500
Mr. Kennedy....................... 25,000 52,000 165,625 253,500
Mr. Congdon....................... 25,000 52,000 165,625 253,500
</TABLE>
- ---------------
(a) Based upon the closing price of Class A Common Stock on December 31, 1996 of
$16.125.
(b) Represents options to purchase shares of Class A Common Stock. These options
were exercised in full in September 1997.
(c) Represents options to purchase shares of Class B Common Stock.
No options were exercised by the Named Executive Officers in 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Mr. Agronin and Dr. Weber,
neither of whom has ever been an officer or employee of the Company or any of
its subsidiaries or 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 Internal Revenue Code of 1986 (the "Code") or
nonqualified options (intended not to qualify as incentive stock options) to
purchase Common Stock. The 1994 Option Plan is administered by the Compensation
Committee of the Board of Directors. The price per share of a stock option must
be at least the fair market value per share as of the date of grant. 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, 1,802,150 options are outstanding under the 1994 Option Plan
(including 164,000 options to purchase shares of Class B Common Stock). No
additional options may be granted under the 1994 Option Plan without receipt of
stockholder approval of an amendment to increase the number of shares that may
be issued thereunder. In connection with the Special Bonus Program established
as part of the Budget Acquisition, the Company granted, effective April 29,
1997, Special Bonus Options to purchase an aggregate of 440,000 shares of Class
A Common Stock to approximately 4,750 BRACC employees under its 1994 Option
Plan. Following the Budget Acquisition, the Company also granted options to
purchase an aggregate of 675,000 shares of Class A Common Stock (the "Company
Options") to approximately 1,550 employees of the Company that were not
previously employed by BRACC. The Company Options include 90,000 options granted
to Mr. Miller and 75,000 options granted to each of Messrs. Congdon and Kennedy.
Of the Company Options granted to Messrs. Miller, Kennedy and Congdon, an
aggregate of 214,850 options were granted subject to approval by the
stockholders of an amendment to the plan to increase the number of shares that
may be issued thereunder. The Special Bonus Options and the Company Options are
exercisable on the second
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anniversary of the date of grant and are exercisable for a period of eight years
thereafter. See "The Budget Acquisition -- Terms of the Stock Purchase
Agreements -- Special Bonus Program".
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 of options to purchase Class A Common Stock. The 1994 Directors'
Plan is administered by the Board of Directors. The maximum number of shares of
the Class A Common Stock subject to options granted pursuant to the 1994
Directors' Plan is 150,000. The exercise price per share under an option is 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 control" of the Company as defined in the 1994 Directors' Plan.
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, 130,000 options are outstanding under the 1994 Directors' Plan.
CERTAIN TRANSACTIONS
Concurrently with the completion of the Company's initial public offering
in August 1994, the Principal Executive Officers 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 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., a wholly owned subsidiary of the Company, purchased all the shares
of capital stock of Ft. Wayne Rental Group, Inc. ("Ft. Wayne"). Ft. Wayne, which
was owned by Mr. Miller and others, including a former employee of the Company,
acquired the assets comprising 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, valued at approximately $200,000. 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, 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.
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 $95,000, $97,000
and $100,000 in 1994, 1995 and 1996, respectively. The monthly base rent under
this lease (approximately $7,900, $8,100 and $8,300 in 1994, 1995 and 1996,
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, $33,000 and $43,000 in 1994,
1995 and 1996, respectively. The monthly base rent under this lease was
approximately $3,400, $3,500 and $3,600 in 1994, 1995 and 1996, 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.
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This lease terminates in 2003, subject to renewal. The monthly base rent under
this lease (approximately $6,700, $6,800 and $7,000 in 1994, 1995 and 1996,
respectively) escalated 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 $75,000,
$81,000 and $84,000 in 1994, 1995 and 1996, respectively. All of these leases
are on a triple net basis (i.e., the Company is responsible for the payment of
taxes, insurance and 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 the Principal
Executive Officers. This lease terminates in September 2002, subject to renewal.
Rental payments under the lease were approximately $168,000 and $316,000 for
1995 and 1996, respectively. 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 the lease were approximately
$10,000 and $121,000 for 1995 (one month) and 1996, respectively. The monthly
base rent under this lease (approximately $10,000 per month in 1996) escalates
by 3% per annum. The Company's 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 to the Company than could be obtained from unaffiliated third parties.
Prior to the Company's initial public offering in August 1994, the
Company's subsidiaries funded their operations in part through loans from the
Company's executive officers. From December 1989 to June 1994, the Company was
provided loans by the Principal Executive Officers, all of which, together with
accrued interest, were repaid upon the completion of the Company's initial
public offering. At that time, the Company repaid loans previously made by Mr.
Miller in the aggregate principal amount of $1,052,257 with a weighted average
interest rate of 12.7%, loans previously made by Mr. Congdon in the aggregate
principal amount of $1,156,257 with a weighted average interest rate of 12.4%,
and loans previously made by Mr. Kennedy in the aggregate principal amount of
$690,000 with a weighted average interest rate of 13.3%.
In addition, in order to finance the organizational expenses incurred by
the Company prior to its initial public offering, Messrs. Miller, Congdon and
Kennedy advanced the following amounts: Mr. Miller -- $41,289 at prime plus 1.5%
and $3,300, non-interest bearing; Mr. Congdon -- $14,266 at prime plus 1.5% and
$1,800, non-interest bearing; and Mr. Kennedy -- $14,266 at prime plus 1.5% and
$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 equal to 5% of the monthly gross 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") and assumed certain other indebtedness that
was personally guaranteed by Mr. Mirkin. 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 1994, 1995 and
1996, the Company paid SoCal approximately $1,000,000, $1,200,000 and $3,700,000
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
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accrued interest of $103,906, and the SoCal Bank Note were repaid in April 1996.
There was approximately $700,000 of other indebtedness payable by the Company to
SoCal at December 31, 1996.
In connection with the acquisition of ValCar in August 1996, the Company
paid $400,000 in cash to acquire all the capital stock of ValCar and assumed an
unsecured note payable to Jeffrey D. Congdon in the amount of $1.5 million. The
note is due on demand and bears interest at the prime rate plus 2%. Pursuant to
this note, the Company made payments to Mr. Congdon in the amount of $64,449 in
1996.
Sanford Miller is a member of the board of directors of Colonial Bank of
Volusia County in Ormond Beach, Florida. The Company maintains a checking
account at that bank with an average balance of $100,000.
In the Underwriting Agreement for the Offering, SoCal and Alan Liker (a
director of the Company and a Selling Stockholder) have agreed to indemnify the
several Underwriters against certain liabilities. The Company has agreed to
indemnify SoCal and Mr. Liker for any liabilities to which they become subject
under the Underwriting Agreement.
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PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth, as of September 30, 1997, 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 either
class of Common Stock of the Company, (ii) the Selling Stockholders (other than
Mr. Liker) and (iii) each of the directors and Named Executive Officers of the
Company and all directors and executive officers as a group. As of that date,
the Company had outstanding 18,108,083 shares of Class A Common Stock and
1,936,600 shares of Class B Common Stock. The Class B Common Stock is
convertible into Class A Common Stock on a share-for-share basis at the option
of the holder. Each share of Class A Common Stock is entitled to one vote and
each share of Class B Common Stock is entitled to ten votes. This table also
gives effect to shares that may be acquired pursuant to options, convertible
notes and convertible preferred stock, as described in the footnotes below.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
------------------------------------------------- -----------------------------------------
PERCENT OF
CLASS A SHARES
NUMBER OF BENEFICIALLY OWNED NUMBER OF PERCENT OF
CLASS A --------------------------- CLASS B CLASS B
DIRECTORS AND EXECUTIVE SHARES BENEFICIALLY PRIOR TO AFTER SHARES BENEFICIALLY SHARES BENEFICIALLY
OFFICERS OWNED(A) THE OFFERING THE OFFERING OWNED OWNED
- ----------------------- ------------------- ------------ ------------ ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Sanford Miller........... 982,500(b) 5.2% 4.2% 965,800(c) 46.0%
Jeffrey D. Congdon....... 587,350(d) 3.2 2.5 567,400(e) 27.0
John P. Kennedy.......... 575,500(f) 3.1 2.5 567,400(e) 27.0
Ronald D. Agronin........ 14,900(g) * * -- --
James F. Calvano......... 17,500(g) * * -- --
Martin P. Gregor......... 15,905(h) * * -- --
Alan D. Liker............ 58,503(i) * * -- --
Jeffrey R. Mirkin........ 662,500(j) 3.7 2.1 -- --
Dr. Stephen L. Weber..... 15,600(g) * * -- --
All directors and
executive officers as a
group (11 persons)..... 2,933,758(k) 14.5 11.8 2,100,600(l) 100.0
OTHER SELLING
STOCKHOLDERS
- -------------------------
Ford FSG, Inc............ 4,500,000(m) 19.9 * -- --
Atlantic Equity
Corporation............ 187,500(n) 1.0 * -- --
Budget Rent-A-Car of
Southern California.... 650,000(o) 3.6 2.1 -- --
OTHER FIVE PERCENT
STOCKHOLDERS
- -------------------------
Metropolitan Life
Insurance Company...... 2,027,053(p) 10.4 8.5 -- --
The Equitable Companies
Incorporated........... 1,915,400(q) 10.6 8.5 -- --
John Hancock Mutual Life
Insurance Company...... 1,424,467(r) 7.3 5.9 -- --
New York Life Insurance
Company................ 1,354,165(s) 7.0 5.6 -- --
Putnam Investments,
Inc.................... 1,599,003(t) 8.8 7.1 -- --
<CAPTION>
PERCENT OF TOTAL
VOTING POWER OF
DIRECTORS AND EXECUTIVE COMMON STOCK
OFFICERS AFTER THE OFFERING
- ----------------------- ------------------
<S> <C>
Sanford Miller........... 22.7%
Jeffrey D. Congdon....... 13.4
John P. Kennedy.......... 13.4
Ronald D. Agronin........ *
James F. Calvano......... *
Martin P. Gregor......... *
Alan D. Liker............ *
Jeffrey R. Mirkin........ 1.1
Dr. Stephen L. Weber..... *
All directors and
executive officers as a
group (11 persons)..... 50.9
OTHER SELLING
STOCKHOLDERS
- -------------------------
Ford FSG, Inc............ *
Atlantic Equity
Corporation............ *
Budget Rent-A-Car of
Southern California.... 1.1
OTHER FIVE PERCENT
STOCKHOLDERS
- -------------------------
Metropolitan Life
Insurance Company...... 4.7
The Equitable Companies
Incorporated........... 4.6
John Hancock Mutual Life
Insurance Company...... 3.3
New York Life Insurance
Company................ 3.1
Putnam Investments,
Inc.................... 3.8
</TABLE>
- ---------------
* Less than 1%.
(a) In determining the number and percent of shares beneficially owned by each
person, shares that may be acquired by such person pursuant to options,
convertible notes or convertible preferred stock exercisable or convertible
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.
(b) Includes (i) 905,800 shares of Class A Common Stock issuable upon
conversion of Class B Common Stock, (ii) 60,000 shares of Class A Common
Stock issuable upon conversion of Class B Common Stock issuable upon
exercise of options and (iii) 4,000 shares of Class A Common Stock owned by
Mr. Miller's children. Mr. Miller's address is 125 Basin Street, Dayton
Beach, Florida 32114.
(c) Includes 60,000 shares of Class B Common Stock issuable upon exercise of
options.
(d) Includes (i) 515,400 shares of Class A Common Stock issuable upon
conversion of Class B Common Stock and (ii) 52,000 shares of Class A Common
Stock issuable upon conversion of
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<PAGE> 73
Class B Common Stock issuable upon exercise of options. Mr. Congdon's
address is 2445 Directors Row, Suite K, Indianapolis, Indiana 46241.
(e) Includes 52,000 shares of Class B Common Stock issuable upon exercise of
options.
(f) Includes (i) 515,400 shares of Class A Common Stock issuable upon
conversion of Class B Common Stock and (ii) 52,000 shares of Class A Common
Stock issuable upon conversion of Class B Common Stock issuable upon
exercise of options. Mr. Kennedy's address is 18 King's Highway, Westport,
Connecticut 06880.
(g) Includes 12,500 shares of Class A Common Stock issuable upon exercise of
options.
(h) Includes 7,500 shares of Class A Common Stock issuable upon exercise of
options.
(i) Represents (i) 46,003 shares of Class A Common Stock that may be acquired
by Mr. Liker pursuant to an option granted by SoCal to Mr. Liker and (ii)
12,500 shares of Class A Common Stock issuable upon exercise of options. On
September 30, 1997, Mr. Liker exercised his option from SoCal to purchase
40,000 shares of Class A Common Stock, all of which are being offered in
the Offering.
(j) Represents (i) 650,000 shares of Class A Common Stock beneficially owned by
SoCal, a general partnership, of which Mr. Mirkin is a general partner and
the trustee of certain trusts which are general partners of SoCal, 140,000
of which are being offered by SoCal in this Offering and 40,000 of which
are being offered by Mr. Liker in this Offering following his exercise of
the SoCal option and (ii) 12,500 shares of Class A Common Stock issuable
upon exercise of options. Mr. Mirkin's address is 150 South Doheny Drive,
Beverly Hills, California 90211.
(k) Includes (i) 1,936,600 shares of Class A Common Stock issuable upon
conversion of Class B Common Stock, (ii) 70,000 shares of Class A Common
Stock issuable upon the exercise of options and (iii) 164,000 shares of
Class A Common Stock issuable upon conversion of Class B Common Stock
issuable upon the exercise of options.
(l) Includes 164,000 shares of Class B Common Stock issuable upon the exercise
of options.
(m) In connection with the Budget Acquisition, Ford acquired 4,500 shares of
Series A Convertible Preferred Stock, which are convertible upon sale into
an aggregate of 4,500,000 shares of Class A Common Stock. Of these,
4,400,000 shares of Class A Common Stock are being offered in the Offering.
Following the Offering, assuming that the over-allotment option granted by
it is not exercised, Ford will beneficially own 100 shares of Series A
Convertible Preferred Stock, which are convertible upon sale into an
aggregate of 100,000 shares of Class A Common Stock.
(n) Represents shares of Class A Common Stock issuable upon exercise of the
NationsBank Warrant, as described under "Description of Capital
Stock -- Warrants". Of these, 137,500 shares of Class A Common Stock are
being offered hereby. Following the Offering, assuming that the over-
allotment option granted by it is not exercised, Atlantic Equity
Corporation will beneficially own 50,000 shares of Class A Common Stock,
which are issuable upon exercise of the warrant.
(o) Of these shares, 140,000 shares of Class A Common Stock are being offered
by SoCal in this Offering and 40,000 shares are being offered by Mr. Liker
in this Offering. Following the Offering, SoCal will beneficially own
470,000 shares of Class A Common Stock.
(p) Includes 1,335,053 shares of Class A Common Stock issuable upon conversion
of Convertible Notes as described under "Description of Certain
Indebtedness -- Convertible Notes". Certain of this information is included
in reliance upon a Schedule 13G filed by Metropolitan Life Insurance
Company ("Metropolitan") with the Securities and Exchange Commission (the
"Commission") on February 11, 1997. Metropolitan's address is 334 Madison
Avenue, Convent Station, New Jersey 07961.
(q) Represents shares of Class A Common Stock owned by subsidiaries of The
Equitable Companies Incorporated ("The Equitable") as follows: (i) 134,000
shares of Class A Common Stock held by The Equitable Life Assurance Society
of the United States, and (ii) 1,781,400 shares of Class A Common Stock
held by Alliance Capital Management L.P. This information is included in
reliance upon a Schedule 13G filed by The Equitable with the Commission on
July 10, 1997. The Equitable's address is 787 Seventh Avenue, New York, New
York 10019.
(r) Represents shares of Class A Common Stock issuable upon conversion of
Convertible Notes. John Hancock Mutual Life Insurance Company's address is
John Hancock Place, 200 Clarendon Street, Boston, Massachusetts 02117.
(s) Represents shares of Class A Common Stock issuable upon conversion of
Convertible Notes. New York Life Insurance Company's address is 51 Madison
Avenue, New York, New York 10010.
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(t) Represents shares of Class A Common Stock owned by subsidiaries of Putnam
Investments, Inc. ("Putnam"), which is a subsidiary of Marsh & McLennan
Companies, Inc. ("Marsh & McLennan"), as follows: (i) 1,181,203 shares of
Class A Common Stock held by Putnam Investment Management, Inc. ("PIM"), as
to which PIM has shared dispositive power, and (ii) 417,800 shares of Class
A Common Stock held by The Putnam Advisory Company, Inc. ("PAC"); PAC
shares voting power with respect to 359,800 of such shares and shares
dispositive power with respect to all of such shares. This information is
included in reliance upon a Schedule 13G filed by Marsh & McLennan, Putnam,
PIM and PAC with the Commission on May 14, 1997. The address of Marsh &
McLennan is 1166 Avenue of the Americas, New York, New York 10036. The
address of Putnam, PIM and PAC is One Post Office Square, Boston,
Massachusetts 02109.
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<PAGE> 75
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 35,000,000 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"). As of September 30, 1997, there were 18,108,083 shares of the Class A
Common Stock, 1,936,600 shares of the Class B Common Stock and 4,500 shares of
Preferred Stock outstanding. Upon completion of the Offering, there will be an
additional 4,537,500 shares of Class A Common Stock outstanding and there will
be 100 shares of 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 and as provided under the
Delaware General Corporation Law. Immediately following the Offering, the
holders of the Class B Common Stock will have, together with the Class A Common
Stock owned by such individuals, approximately 49.5% of the combined voting
power of the outstanding Class A and Class B Common Stock. As a result, the
Principal Executive Officers will be able to exert substantial influence over
the election 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.
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 therefor. 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 is
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.
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<PAGE> 76
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 for 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 the Offering will be, legally issued, fully paid and
nonassessable.
PREFERRED STOCK
GENERAL
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 (the "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 comprising
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 an adverse effect on market price of the Common Stock.
SERIES A CONVERTIBLE PREFERRED STOCK
In January 1997, the Board of Directors authorized the issuance of 10,000
shares of Preferred Stock, par value $0.01 per share, designated as the "Series
A Convertible Preferred Stock". In connection with the Budget Acquisition, 4,500
shares of Series A Convertible Preferred Stock were issued to Ford. In
connection with the Offering, 4,400 shares of the Series A Convertible Preferred
Stock will convert into 4,400,000 shares of Class A Common Stock, which are
being offered hereby, and 100 shares of the Series A Convertible Preferred Stock
will remain outstanding.
RANK. The Series A Convertible Preferred Stock ranks, with respect to
dividend rights and rights on liquidation, senior to the Common Stock.
VOTING RIGHTS. The holders of the Series A Convertible Preferred Stock are
not entitled to any voting rights, except as otherwise provided by law or as
noted below. The affirmative vote of a majority of the shares of Series A
Convertible Preferred Stock, voting as a separate class, will be required to
amend the Amended and Restated Certificate of Incorporation if such amendment
affects materially and adversely the specified rights, preferences, privileges
or voting rights of the Series A Convertible Preferred Stock.
DIVIDENDS. Each share of the Series A Convertible Preferred Stock is
entitled to receive dividends if, as and when declared by the Board of Directors
of the Company out of funds legally available therefor. No dividends may be
declared by the Board of Directors on the Common Stock or any other class of
stock ranking junior to the Series A Convertible Preferred Stock unless full
cumulative dividends have been or contemporaneously are declared and paid with
respect to the Series A Convertible Preferred Stock.
CONVERTIBILITY. Each share of Series A Convertible Preferred Stock will
automatically be converted into 1,000 shares of Class A Common Stock (subject to
adjustment in the case of stock dividends, subdivisions, reverse stock splits or
reclassifications of outstanding Class A Common Stock) in the event
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<PAGE> 77
that the record ownership of such Series A Convertible Preferred Stock is
transferred to any person other than Ford or an affiliate of Ford.
LIQUIDATION RIGHTS. In the event of the dissolution, liquidation or
winding up of the affairs of the Company, after satisfaction of amounts payable
to creditors, holders of shares of Series A Convertible Preferred Stock are
entitled to receive distributions in the same amount that such holders would
receive if such shares were converted into shares of Class A Common Stock
immediately prior to the dissolution, liquidation or winding up of the affairs
of the Company, in preference to any payment to holders of Common Stock or any
other securities ranking junior to the Series A Convertible Preferred Stock.
OTHER PROVISIONS. There are no preemptive rights to subscribe for any
additional securities which the Company may issue and there are no redemption
provisions or sinking fund provisions applicable to the Series A Convertible
Preferred Stock, nor is the Series A Convertible Preferred Stock subject to
calls or assessments by the Company.
CONVERTIBLE NOTES
In December 1996, the Company issued $80.0 million aggregate principal
amount of Series A Convertible Notes. The Series A Convertible Notes are
convertible, at the option of the holders, into Class A Common Stock at a
conversion price of $20.07 per share. The outstanding Series A Convertible Notes
are convertible into an aggregate of 3,986,049 shares of Class A Common Stock.
In connection with the Budget Acquisition, the Company issued $45.0 million
aggregate principal amount of Series B Convertible Notes. The Series B
Convertible Notes are convertible, at the option of the holders, into Class A
Common Stock at a conversion price of $27.96 per share. The outstanding Series B
Convertible Notes are convertible into an aggregate of 1,609,442 shares of Class
A Common Stock.
WARRANTS
In connection with financing provided to the Company in April 1996, the
Company issued to NationsBank, National Association (South), a wholly owned
subsidiary of NationsBank, 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 at any time until April 2001. In connection
with the Offering, Atlantic Equity Corporation, a wholly owned subsidiary of
NationsBank, will exercise a portion of the NationsBank Warrant and is offering
137,500 shares of Class A Common Stock hereby. Following the Offering, 50,000
shares of Class A Common Stock will remain issuable pursuant to the NationsBank
Warrant.
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 the 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. These provisions will make it more difficult for a third party
to gain control of the Company.
REGISTRATION RIGHTS
Concurrently with the consummation of the Budget Acquisition, the Company
and Ford entered into the Preferred Stockholders Agreement, pursuant to which
registration rights were granted to Ford with respect to any Series A
Convertible Preferred Stock or Class A Common Stock issued to Ford as part of
the Equity Consideration (the "Ford Registrable Securities"). The Offering is
being conducted pursuant to Ford's exercise of these registration rights. The
Company has agreed to pay the costs and expenses incurred in connection with the
Offering, other than underwriting discounts and commissions.
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<PAGE> 78
In connection with the sale of the Series A Convertible Notes in December
1996, the Company entered into a registration rights agreement granting holders
registration rights with respect to the shares of Class A Common Stock into
which the notes are convertible. In connection with the sale of Series B
Convertible Notes, the Company amended and restated the registration rights
agreement (the "Notes Registration Rights Agreement") to which the holders of
Series A Convertible Notes were parties, and the holders of Series B Convertible
Notes became parties thereto. The Notes Registration Rights Agreement provides
that the Company will file a shelf registration statement relating to the Series
B Convertible Notes and the shares of Class A Common Stock issuable upon
conversion of the Convertible Notes at the earlier of one year from the date of
issuance of the Series B Convertible Notes or promptly after the disposition by
Ford of at least 2.25 million shares of Class A Common Stock (the "probation
period"). Accordingly, the Company expects to file this registration statement
promptly following the completion of the Offering. The holders may require the
Company to effect an underwritten public offering pursuant to the shelf
registration statement. In addition, the holders of all outstanding Series A
Convertible Notes and the Series B Convertible Notes may require the Company to
register such notes at any time during the probation period. The Company may
prohibit offers and sales of securities pursuant to the registration statements
under certain circumstances. The Company has also agreed to pay the costs and
expenses of each registration effected under the Notes Registration Rights
Agreement, other than underwriting discounts and commissions.
Concurrently with completion of its initial public offering in August 1994,
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 provides
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 (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 Company has agreed to refrain from selling its securities during
the 10-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 Registration Rights Agreement was
amended in November 1994 to include persons who received 18,500 shares of Class
A Common Stock in the Company's acquisition of a Budget franchise territory.
In connection with the Los Angeles Acquisition, the Company and SoCal
entered into a registration rights agreement granting SoCal and its affiliated
entities unlimited "piggyback" registration rights, subject to certain
conditions. The Company will bear the expenses of registering such shares, other
than underwriting discounts and commissions. SoCal and its affiliated entities
are registering 180,000 shares of Class A Common Stock in this Offering pursuant
to these registration rights.
INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, the Company's Amended
and 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 intentional
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
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<PAGE> 79
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 General Corporation
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 (i) before such person became an interested
stockholder, the board of directors of the corporation approved the transaction
in which the interested stockholder became an interested stockholder or approved
the business combination; (ii) upon consummation of the transaction that
resulted in the interested stockholder's becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares held by
directors who are also officers of the corporation and certain shares held by
employee stock plans); or (iii) following the transaction in which such person
became an interested stockholder, the business combination is approved by the
board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of 66 2/3% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. 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
ChaseMellon Shareholder Services.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
THE APRIL 1997 WORKING CAPITAL FACILITY
In April 1997, BRACC entered into the April 1997 Working Capital Facility,
for which Credit Suisse First Boston acted as agent, to replace TEAM's $10.0
million working capital facility. Each of the direct and indirect subsidiaries
of BRACC guaranteed the April 1997 Working Capital Facility, subject to certain
exceptions. The following is a summary of the material terms and conditions of
the April 1997 Working Capital Facility.
The April 1997 Working Capital Facility consists of a five-year senior,
secured revolving credit facility in the amount of $300 million. The April 1997
Working Capital Facility provides that (i) up to $100 million will be available
for loans, (ii) up to $40 million (or the equivalent thereof in certain foreign
currencies) of such $100 million will be available under a multi-currency
subfacility, (iii) up to $300 million will be available for letters of credit
and (iv) up to $225 million of such $300 million will be available for letters
of credit for credit enhancement of commercial paper or similar fleet financing
programs. In addition, aggregate letter of credit and loan outstandings under
the April 1997 Working Capital Facility will be subject to a borrowing base
limitation and may not at any time exceed the sum of 85% of eligible receivables
(as defined therein), 100% of eligible repurchase vehicles (as defined therein),
85% of eligible non-repurchase vehicles (as defined therein), and 100% of
eligible cash and cash equivalents (as defined therein). All letters of credit
and loans under the April 1997 Working Capital Facility will mature on or by the
fifth anniversary of the date of the loan agreement.
Interest accrues on borrowings outstanding under the April 1997 Working
Capital Facility, at the Company's option, at a rate equal to (i) either the
higher of (A) the interest rate established by Credit Suisse as its base or
prime rate in effect at its principal office in New York City and (B) the
federal funds effective rate from time to time plus 0.5% (the higher of these
being known as the "ABR") plus the applicable margin for ABR loans (which margin
shall range from approximately 0.25% to 1.25%) or (ii) the rate at which
Eurocurrency deposits in the relevant denomination currency for one, two, three
or six months (as selected by the Company) are offered by Credit Suisse in the
relevant interbank Eurocurrency market plus the applicable margin for the
Eurocurrency rate (which margin shall range from 1.25% to 2.25%). The April 1997
Working Capital Facility requires the Company to pay the following fees: (i) a
commitment fee based on the ratio of adjusted debt to adjusted EBITDA of the
Company and ranging from 0.25% to 0.375% per annum; (ii) a letter of credit fee
on the aggregate amount available under outstanding letters of credit equal to a
rate per annum which is the same as the applicable margin for Eurocurrency loans
from time to time in effect; and (iii) a letter of credit fronting fee equal to
a rate per annum of 1/8% of the aggregate amount available under each letter of
credit issued.
The April 1997 Working Capital Facility is secured by (a) a first-priority
lien on (i) the capital stock of BRACC and each direct and indirect subsidiary
of BRACC (with respect to the international subsidiaries, no more than 65% of
the stock of each subsidiary will be required to be pledged in the event that a
pledge of a greater percentage would result in material increased tax or similar
liabilities for the Company and its subsidiaries on a consolidated basis); (ii)
cash and other working capital such as receivables and related contract rights
of BRACC and its subsidiaries (other than assets pledged as security in respect
of a vehicle financing program); and (iii) all assets included in the borrowing
base and (b) as to letters of credit issued as credit and/or liquidity
enhancement for the Company's commercial paper program, perfected liens on the
assets surrounding the commercial paper issued pursuant to the commercial paper
program (which, in the case of credit enhancement, will generally be
subordinated).
The April 1997 Working Capital Facility contains a number of customary
affirmative covenants, including covenants which require BRACC and the Company
to deliver financial statements and other reports; pay other obligations;
maintain corporate existence; comply with laws and contracts; maintain
properties and insurance; maintain books and records; grant the lenders certain
inspection rights; provide notices of defaults, litigation and material events;
and comply with environmental matters. The April 1997 Working Capital Facility
also contains a number of customary negative covenants, including limitations on
80
<PAGE> 81
indebtedness (including preferred stock), liens, guarantee obligations, mergers,
consolidations, liquidations and dissolutions, sales of assets, leases,
dividends and other payments in respect of capital stock, capital expenditures,
investments, loans and advances; payments and modifications of subordinated and
other debt instruments, transactions with affiliates, changes in fiscal year;
negative pledge clauses; and changes in lines of business.
BRACC and the Company are required to meet certain financial covenants,
consisting of (a) a minimum net worth (as defined) of the Company equal to the
sum of (i) $263.4 million plus 50% of the net income of the Company for each
fiscal year commencing with 1997 as shall have been completed on or prior to the
time of computation plus 50% of the net equity proceeds (as defined); (b) a
maximum leverage ratio (as defined) of 5.60 to 1.00 for the quarter ending
September 30, 1997, declining to 3.25 to 1.00 for the quarter ending December
31, 1999 and each fiscal quarter thereafter; and (c) a minimum interest coverage
ratio (as defined) of 2.50 to 1.00 for the quarter ending September 30, 1997,
increasing to 3.25 to 1.00 for the quarter ending September 30, 1999 and each
fiscal quarter thereafter.
CONVERTIBLE NOTES
SERIES A CONVERTIBLE NOTES
In December 1996, the Company issued $80.0 million aggregate principal
amount of 7.0% Convertible Subordinated Notes, Series A, due 2003. At a
conversion price of $20.07 per share, the Series A Convertible Notes are
convertible into an aggregate of 3,986,049 shares of Class A Common Stock.
Concurrently with the issuance of the Series B Convertible Notes, the note
purchase agreements relating to the Series A Convertible Notes were amended to
extend the maturity of the notes to 2007 and to conform certain terms of the
notes to the terms of the Series B Convertible Notes.
SERIES B CONVERTIBLE NOTES
Concurrently with the consummation of the Budget Acquisition, the Company
issued $45.0 million aggregate principal amount of 6.85% Convertible
Subordinated Notes, Series B, due 2007. The Series A Convertible Notes and the
Series B Convertible Notes are generally treated as a single class of notes for
all purposes. The Series B Convertible Notes are convertible, at the option of
the holders, into an aggregate of 1,609,442 shares of Class A Common Stock,
after the earlier of the first anniversary of the date of issuance or the
disposition by Ford of at least 2.25 million shares of Class A Common Stock, at
a conversion price of $27.96 per share. Accordingly, the Series B Convertible
Notes will become convertible upon completion of the Offering.
REDEMPTION
The Series A Convertible Notes and the Series B Convertible Notes are
redeemable, in whole or in part, at the option of the Company, at a premium
equal to 4.567% and 4.667%, respectively, declining in equal amounts to par in
April 2006, plus accrued and unpaid interest to the redemption date, provided
that prior to April 2002, no such redemption of the Convertible Notes will be
permitted unless the closing price of the Class A Common Stock for at least ten
consecutive trading days (commencing 20 trading days before the Company's notice
of redemption) was at least 150% of the conversion price for the notes of such
series.
REGISTRATION RIGHTS
The Company has granted registration rights to the holders of the
Convertible Notes. For a description of such registration rights, see
"Description of Capital Stock -- Registration Rights".
COVENANTS
The Convertible Notes contain a number of customary affirmative covenants,
including covenants which require the Company to pay principal and interest on
the Convertible Notes, maintain properties,
81
<PAGE> 82
pay taxes and claims, maintain its corporate existence, and continue in its
lines of business. Furthermore, the Convertible Notes contain covenants limiting
consolidation or merger and limiting the sale, lease or conveyance of all or
substantially all of the Company's assets. In addition, upon a change of control
(as defined in the note purchase agreements), each noteholder may require the
Company to repurchase the Convertible Notes held by such holder at 101% of the
principal amount thereof plus accrued interest to the date of repurchase. The
Convertible Notes do not contain any financial covenants.
GUARANTEED SENIOR NOTES
Concurrently with the consummation of the Budget Acquisition, BRACC issued
$165.0 million aggregate principal amount of 9.57% Guaranteed Senior Notes due
2007. The Guaranteed Senior Notes are guaranteed by the Company and certain
subsidiaries of BRACC.
MANDATORY REDEMPTION
The Guaranteed Senior Notes require annual principal payments equal to
$23.6 million commencing on the fourth anniversary of the date of issuance.
OPTIONAL REDEMPTION
The Guaranteed Senior Notes are redeemable at any time at the option of
BRACC, in whole or in part, at a price equal to the greater of par or the
present value of the future debt service on such notes, discounted at 75 basis
points above the then current yield to maturity of a U.S. Treasury security with
a maturity comparable to the remaining weighted average life of the notes. In
addition, as long as any Convertible Notes are outstanding, there must be
outstanding at least $23.0 million aggregate principal amount of Guaranteed
Senior Notes.
COVENANTS
The Guaranteed Senior Notes contain a number of customary affirmative
covenants, including covenants which require the Company to comply with law;
maintain insurance; maintain its properties; pay taxes and claims; maintain its
corporate existence; and continue in its lines of business. Furthermore, the
Guaranteed Senior Notes contain covenants limiting liens, sale and leaseback
transactions, restricted subsidiary debt, consolidated funded debt, maintenance
of consolidated stockholders' equity, sale of assets, mergers or consolidations,
restricted payments and transactions with affiliates. The Company is required to
meet certain financial covenants, consisting of (a) a minimum pro forma
non-vehicle interest coverage ratio of 2.0 to 1 prior to January 1, 2000 and 3.0
to 1 thereafter; (b) minimum non-vehicle leverage ratio (as defined) of 6.3 to 1
prior to January 1, 1999, 5.0 to 1 thereafter and prior to January 1, 2000, 4.0
to 1 thereafter and prior to January 1, 2001, 3.5 to 1 thereafter and prior to
January 1, 2002 and 3.0 to 1 thereafter; and (c) a minimum consolidated
stockholders' equity (as defined) equal to the sum of 80% of consolidated net
worth at the closing of the Budget Acquisition plus 50% of consolidated net
income (as defined) for each fiscal year beginning with the year ending December
31, 1997 for which consolidated net income is positive. In addition, upon a
change of control (as defined in the note purchase agreement), each noteholder
may require the Company to repurchase the notes held by such holder at 101% of
the principal amount thereof plus accrued interest to the date of repurchase.
APRIL 1997 FLEET FINANCINGS
For a description of the Company's April 1997 Fleet Financings, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company -- Liquidity and Capital Resources".
82
<PAGE> 83
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
22,645,583 shares of the Class A Common Stock and 1,936,600 shares of the Class
B Common Stock. The Class B Common Stock is convertible into Class A Common
Stock on a share-for-share basis and must be converted to effect any public sale
of such stock. Of these shares, 21,529,133 shares, including the 4,717,500
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 1,116,450 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. All these shares of Class A Common Stock and all outstanding shares of
Class B Common Stock are eligible for sale under Rule 144. The Company's
directors and executive officers, who in the aggregate beneficially own
2,933,758 shares of Common Stock, 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 Goldman, Sachs & Co., on behalf
of the Underwriters. See "Underwriting". 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, the holders of
the Convertible Notes and the holder of the stock purchase warrant possess
certain demand and/or "piggyback" registration rights. See "Description of
Capital Stock -- Registration Rights" and "Management -- Benefit Plans".
The Company has reserved 1,750,000 shares of Common Stock for issuance
under the 1994 Option Plan (which may be either Class A Common Stock or Class B
Common Stock) and 150,000 shares of Class A Common Stock for issuance under the
1994 Directors' Plan. There are 1,802,150 stock options currently issued and
outstanding under the 1994 Option Plan (of which 164,000 are options to purchase
Class B Common Stock) and 130,000 stock options issued and outstanding under the
1994 Directors' Plan. The Company filed a Form S-8 Registration Statement under
the Securities Act to register 760,000 shares of the Common Stock issuable under
the 1994 Option Plan and 25,000 shares of Class A Common Stock issuable under
the 1994 Directors' Plan. Shares issued upon the exercise of stock options after
the effective date of the Form S-8 registration statement became 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
and options. The Company expects to file a Form S-8 Registration Statement with
respect to the remaining shares of Common Stock issuable under the 1994 Option
Plan and the 1994 Directors' Plan. The Company has further reserved 100,000
shares of Class A Common Stock for issuance upon the conversion of Series A
Convertible Preferred Stock and 50,000 shares of Class A Common Stock for
issuance upon the exercise of the NationsBank Warrant.
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. The
Underwriters have been represented by Cravath, Swaine & Moore, New York, New
York.
EXPERTS
The consolidated financial statements of Budget Group, Inc. as of and for
the year ended December 31, 1996, included in this Prospectus and elsewhere in
the Registration Statement have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their report
83
<PAGE> 84
with respect thereto and are included herein in reliance upon the authority of
said firm as experts in accounting and auditing in giving said report.
The consolidated financial statements of Budget Group, Inc. as of December
31, 1995 and for each of the two 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 ("D&T"), independent auditors, as stated in its 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 consolidated financial statements of BRACC as of December 31, 1995 and
1996 and for each of the three years in the period ended December 31, 1996 have
been included in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein and upon the authority of said firm as experts in accounting and
auditing.
On November 26, 1996, TEAM appointed Arthur Andersen LLP as its independent
accounting firm for the remainder of 1996. TEAM's Audit Committee recommended
the appointment, which was approved by the Board of Directors. Concurrently, the
Board of Directors elected to dismiss D&T, TEAM's former independent accounting
firm. The report of D&T on TEAM's financial statements for the two years ended
December 31, 1995 contained no adverse opinion or disclaimer of opinion, and was
not qualified or modified as to uncertainty, audit scope or accounting
principles. Since TEAM's inception, D&T's reports on TEAM's financial statements
have not contained an adverse opinion or a disclaimer of opinion, nor were the
opinions qualified or modified as to uncertainty, audit scope or accounting
principles, nor were there any events of the type requiring disclosure under
Item 304(a)(1)(v) of Regulation S-K under the Securities Act.
With regard to Item 304(a)(1)(iv) of Regulation S-K, TEAM has previously
reported the following: (i) On February 2, 1996, TEAM announced that it would
restate its financial statements for all periods since its initial public
offering in 1994. This restatement resulted from a change in the accounting
treatment of the BRACC Warrant issued to BRACC concurrently with TEAM's initial
public offering in August 1994. This change in accounting treatment was the
subject of numerous discussions between officers of TEAM and representatives of
D&T (including discussions between D&T and the Audit Committee of the Company's
Board of Directors, which occurred in January 1996), and was approved by the
Audit Committee and announced to the public on February 2, 1996. TEAM believes
this matter was resolved to the satisfaction of D&T; (ii) in late 1995, TEAM
received funds from a vehicle manufacturer that it accounted for in a manner
similar to funds it had received from a vehicle manufacturer in 1993. In March
1996, D&T advised TEAM that it did not deem the 1995 transaction analogous to
the 1993 transaction. D&T discussed this matter with officers of TEAM, and TEAM
issued its financial statements in accordance with the recommendation of D&T. In
connection with the resolution of this matter, neither the Board of Directors
nor any committee thereof formally discussed this matter with D&T. TEAM believes
that this matter was resolved to the satisfaction of D&T.
The Company has provided D&T with a copy of the disclosures contained
herein and D&T has indicated in a letter to the Commission that it agrees with
these disclosures. A copy of such letter is filed as an exhibit to the
Registration Statement. Neither TEAM nor anyone acting on its behalf consulted
with Arthur Andersen LLP regarding any of the matters referred to in Item
304(a)(2) of Regulation S-K prior to its appointment.
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<PAGE> 85
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 Commission
maintains a World Wide Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
such as the Company which file electronically with the Commission. In addition,
the Company's Class A Common Stock currently is traded on the New York Stock
Exchange ("NYSE") and such reports, proxy and information statements and other
information concerning the Company can be inspected and copied at the offices of
the NYSE located at 20 Broad Street, New York, New York 10005.
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. The Company believes that all statements made herein
that summarize the provisions of any documents accurately describe the material
provisions of all such referenced documents. 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 addresses
indicated above. Copies of the Registration Statement can be obtained from the
public reference section of the Commission upon payment of prescribed fees.
85
<PAGE> 86
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUDGET GROUP, INC.
- -----------------------------
Report of Independent Certified Public Accountants.......... F-2
Consolidated Condensed Balance Sheets as of December 31,
1996 and June 30, 1997.................................... F-3
Consolidated Statements of Operations for the Six Month
Periods Ended June 30, 1996 and 1997...................... F-4
Consolidated Statement of Changes in Stockholders' Equity
for the Six Month Period Ended June 30, 1997.............. F-5
Consolidated Statements of Cash Flows for the Six Month
Periods Ended June 30, 1996 and 1997...................... F-6
Notes to Unaudited Consolidated Financial Statements........ F-7
Report of Independent Certified Public Accountants.......... F-10
Independent Auditors' Report................................ F-11
Consolidated Balance Sheets as of December 31, 1995 and
1996...................................................... F-12
Consolidated Statements of Income for Each of the Three
Years in the Period Ended December 31, 1996............... F-13
Consolidated Statements of Stockholders' Equity (Deficit)
for Each of the Three Years in the Period Ended December
31, 1996.................................................. F-14
Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1996............... F-15
Notes to Consolidated Financial Statements.................. F-16
BUDGET RENT A CAR CORPORATION
- ------------------------------------
Consolidated Balance Sheets as of December 31, 1996 and
March 31, 1997............................................ F-34
Consolidated Statements of Operations for the Three Months
Ended March 31, 1996 and 1997............................. F-35
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1994, 1995 and 1996 and the Three
Months Ended March 31, 1997............................... F-36
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1996 and 1997............................. F-37
Notes to Consolidated Financial Statements (Unaudited)...... F-38
Independent Auditors' Report................................ F-39
Consolidated Balance Sheets as of December 31, 1995 and
1996...................................................... F-40
Consolidated Statements of Operations -- December 31, 1994,
1995 and 1996............................................. F-42
Consolidated Statements of Stockholders' Equity -- Years
Ended December 31, 1994, 1995 and 1996.................... F-43
Consolidated Statements of Cash Flows -- December 31, 1994,
1995 and 1996............................................. F-44
Notes to Consolidated Financial Statements.................. F-45
</TABLE>
F-1
<PAGE> 87
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Budget Group, Inc.:
We have reviewed the accompanying consolidated condensed balance sheet of
Budget Group, Inc. and subsidiaries as of June 30, 1997, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the six-month period then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orlando, Florida
September 4, 1997
F-2
<PAGE> 88
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 50,490 $ 181,338
Restricted cash............................................. 66,336 153,706
Trade and vehicle receivables, net of allowance for doubtful
accounts.................................................. 31,302 233,782
Accounts receivable, related parties........................ 58 58
Prepaids, inventories and deposits.......................... 13,972 81,462
Vehicle Inventory........................................... 16,413 29,618
Revenue earning vehicles, net............................... 319,257 2,340,807
Property and equipment, net................................. 18,502 135,363
Other assets................................................ -- 48,398
Intangible assets, net...................................... 70,893 395,443
-------- ----------
Total assets...................................... $587,223 $3,599,975
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses....................... $ 31,127 $ 463,400
Capital lease obligations................................... 580 496
Notes payable............................................... 454,109 2,756,084
Deferred income taxes....................................... 7,406 3,369
-------- ----------
Total liabilities................................. 493,222 3,223,349
-------- ----------
COMMON STOCK WARRANT........................................ 2,000 --
STOCKHOLDERS' EQUITY:
Convertible preferred stock............................... -- 105,750
Common stock.............................................. 112 199
Additional paid-in capital................................ 89,856 265,185
Foreign currency translation adjustment................... -- (42)
Retained earnings......................................... 2,363 5,864
Treasury stock............................................ (330) (330)
-------- ----------
Total stockholders' equity........................ 92,001 376,626
-------- ----------
Total liabilities and stockholders' equity...... $587,223 $3,599,975
======== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-3
<PAGE> 89
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIODS
ENDED JUNE 30,
--------------------------
1996 1997
----------- -----------
(AMOUNTS IN THOUSANDS
EXCEPT PER SHARE DATA)
<S> <C> <C>
OPERATING REVENUE:
Vehicle rental revenue.................................... $103,842 $294,559
Retail car sales revenue.................................. 55,686 101,592
Royalty fees and other.................................... -- 12,618
-------- --------
Total operating revenue........................... 159,528 408,769
OPERATING COSTS AND EXPENSES:
Direct vehicle and operating.............................. 12,742 38,402
Depreciation -- vehicles.................................. 28,023 85,217
Depreciation -- non-vehicle............................... 1,210 5,361
Cost of car sales......................................... 47,295 86,068
Advertising, promotion and selling........................ 10,609 35,050
Facilities................................................ 9,417 30,326
Personnel................................................. 24,005 71,403
General and administrative................................ 7,135 16,707
Amortization.............................................. 996 2,975
-------- --------
Total operating costs and expenses................ 141,432 371,509
-------- --------
Operating income............................................ 18,096 37,260
-------- --------
OTHER (INCOME) EXPENSE:
Vehicle interest expense.................................. 11,963 27,794
Non-vehicle interest expense.............................. 931 5,290
Interest income -- restricted cash........................ (787) (1,812)
Related party interest.................................... 118 --
-------- --------
Total other (income) expense...................... 12,225 31,272
-------- --------
Income before income taxes.................................. 5,871 5,988
Provision for income taxes.................................. 2,348 2,487
-------- --------
Net income.................................................. $ 3,523 $ 3,501
======== ========
Net income per common and common equivalent share........... $ 0.48 $ 0.21
======== ========
Weighted average common and common equivalent shares
outstanding............................................... 7,413 16,313
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-4
<PAGE> 90
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FOREIGN
CONVERTIBLE ADDITIONAL CURRENCY TOTAL
PREFERRED COMMON PAID-IN TRANSLATION RETAINED TREASURY STOCKHOLDERS'
STOCK STOCK CAPITAL ADJUSTMENT EARNINGS STOCK EQUITY
----------- ------ ---------- ----------- --------- -------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996... $ -- $112 $ 89,856 $ -- $2,363 $(330) $ 92,001
Shares issued in conjunction
with acquisition of Budget
Rent a Car Corporation....... 105,750 105,750
Net proceeds from stock
offering..................... 87 175,329 175,416
Foreign currency translation... (42) (42)
Net income..................... 3,501 3,501
-------- ---- -------- ---- ------ ----- --------
Balance at June 30, 1997....... $105,750 $199 $265,185 $(42) $5,864 $(330) $376,626
======== ==== ======== ==== ====== ===== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-5
<PAGE> 91
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIODS
ENDED JUNE 30,
--------------------------
1996 1997
--------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 3,523 $ 3,501
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 29,233 90,538
Amortization........................................... 1,133 2,975
(Gain)/Loss on sale of vehicles and equipment.......... -- (1,640)
Deferred income tax benefit............................ (268) 2,963
Provision for losses on accounts receivable............ -- 716
Changes in operating assets and liabilities:
Accounts receivable.................................. (3,321) (9,638)
Vehicle inventory.................................... (6,952) (1,965)
Prepaids, inventories and deposits................... (2,507) (14,420)
Accounts payable and accrued expenses................ (5,797) 24,987
Other liabilities....................................
--------- -----------
Total adjustments................................. 23,095 94,516
--------- -----------
Net cash provided by operating activities......... 26,618 98,017
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash........................................... 64,853 84,690
Proceeds from sale of revenue-earning vehicles............ 119,348 495,770
Purchases of revenue-earning vehicles..................... (263,809) (1,000,330)
Purchase of BRACC and rental vehicle franchise rights, net
of cash acquired....................................... (11,497) (143,164)
Proceeds from sale of property and equipment.............. -- 3,274
Purchases of equipment and improvements................... (8,924) (7,016)
Investment in joint ventures and other.................... -- 1,150
--------- -----------
Net cash used in investing activities............. (100,028) (565,626)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit/notes payable to banks and
other notes payable.................................... 26,074 171,209
Principal payments on revolving credit/notes payable to
banks and other notes payable.......................... (500) (173,836)
Proceeds from fleet lender notes.......................... 108,893 685,657
Principal payments on fleet lender notes.................. (50,362) (462,447)
Proceeds from commercial paper............................ -- 2,272,676
Principal payments on commercial paper.................... -- (1,982,764)
Proceeds from issuance of common stock.................... -- 175,416
Principal payments on capital leases...................... (82) (84)
--------- -----------
Net cash provided by financing activities......... 84,023 685,827
--------- -----------
Net increase in cash and cash equivalents................... 10,613 218,218
Cash and cash equivalents, beginning of period.............. 357 116,826
--------- -----------
Cash and cash equivalents, end of period.................... $ 10,970 $ 335,044
========= ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-6
<PAGE> 92
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Budget
Group, Inc., previously named Team Rental Group, Inc. (the "Company"), have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and note disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the accompanying consolidated financial
statements contain all adjustments (consisting of normal, recurring accruals)
which, in the opinion of management, are necessary to present fairly the
Company's consolidated financial condition, results of operations and cash flows
for the periods presented.
It is suggested that these consolidated financial statements be read in
conjunction with the financial statements and the notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for the full year ending December 31, 1997.
Certain amounts in the 1996 financial statements have been reclassified to
conform with the current year presentation.
On April 29, 1997, pursuant to stock purchase agreements entered into on
January 13, 1997, the Company completed its acquisition of Budget Rent a Car
Corporation ("BRACC") in a purchase transaction and changed its name to Budget
Group, Inc. After the consummation of the BRACC acquisition, BRACC and its
franchisees (collectively referred to as the "Budget System") operate the third
largest worldwide general use car and truck rental system, with approximately
3,200 locations and a peak fleet size during 1996 of 266,000 cars and 18,000
trucks. The Budget System includes locations in both the airport and local
(downtown and suburban) markets in all major metropolitan areas in the United
States, in many other small and mid-size U.S. markets and in more than 110
countries worldwide. Pro forma for the BRACC Acquisition, the Budget System
included approximately 455 company-owned locations in the United States at
December 31, 1996, accounting for approximately 76% of 1996 U.S. system-wide
revenues. In addition, Budget franchisees operated approximately 500
royalty-paying franchise locations in the United States at December 31, 1996.
Budget is one of only three vehicle rental systems that offer rental vehicles
throughout the world under a single brand name, with locations in Europe,
Canada, Latin America, the Middle East, Asia/Pacific and Africa. The Budget
System currently maintains more local market rental locations throughout the
world than most of its major competitors. The Budget System is also unique among
major car rental systems in that it rents trucks in most major markets
worldwide. The Budget System's consumer truck rental fleet is the fourth largest
in the United States. BRACC is also one of the largest independent retailers of
late model vehicles in the United States, operating 23 retail car sales
facilities under the name "Budget Car Sales" with pro forma revenues of $246.9
million for 1996. The consolidated financial statements for the six months ended
June 30, 1997 give effect to the Company's acquisition of BRACC from the date of
acquisition through the end of the period presented. The acquisition has been
accounted for under the purchase method of accounting and, accordingly, the
Company has allocated the cost of the acquisition on the basis of the estimated
fair value of the assets acquired and liabilities assumed. The allocations are
based on preliminary estimates and may be revised at a later date.
The consolidated financial statements for the six months ended June 30,
1996 give effect to the Company's acquisition of all of the outstanding stock of
the Budget franchise in Phoenix, Arizona, and VPSI, Inc.("VPSI"), both of which
were acquired in February 1996, from the date of acquisition through the end of
the period presented.
F-7
<PAGE> 93
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. 1996 ACQUISITIONS
Acquisition of Van Pool Operations -- In February 1996, the Company
purchased for a nominal amount all of the outstanding stock of VPSI, located in
Detroit, Michigan. VPSI provides commuter van pooling services to business
commuters in 22 states, and operated a rental fleet of approximately 3,300 vans
as of the acquisition date.
Acquisition of 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 million consisting of cash of
approximately $5.0 million, promissory notes of $10.0 million and 272,727 shares
of Class A common stock.
Acquisition of ValCar Rental Car Sales, Inc. -- On August 1, 1996, the
Company acquired all of the outstanding stock of ValCar Rental Car Sales, Inc.
for $400,000 cash. ValCar owns and operates four retail vehicle sales facilities
in Indianapolis, Indiana, and was formerly owned by a director and officer of
the Company.
If the acquisitions (including the acquisition of BRACC) had occurred at
the beginning of the periods presented, the Company's results of operations
would be as shown in the following table. 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 the
respective periods.
<TABLE>
<CAPTION>
SIX MONTH PERIODS
ENDED JUNE 30,
---------------------
1997 1996
--------- ---------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Operating revenue........................................... 769,336 728,021
Income before income taxes.................................. (19,090) 12
Net income.................................................. (11,072) 628
Earnings per share.......................................... (.60) .03
</TABLE>
3. OTHER EVENTS
On April 17, 1997, the Company's Class A common stock began trading on the
New York Stock Exchange under the ticker symbol "BD". Prior to that time, the
Company's Class A Common Stock had been traded on The Nasdaq National Market.
In conjunction with and concurrent to the acquisition of BRACC on April 29,
1997, the Company sold 8,625,000 shares of Class A common stock at a price of
$21.625 in a public offering raising proceeds, net of underwriting commissions,
of $177.2 million. The Company also issued 4,500 shares of Series A convertible,
non-voting preferred stock, each share of which is convertible into 1,000 shares
of the Company's Class A common stock, to Ford Motor Company. The common shares
underlying the preferred stock had a value of approximately $105.8 million for
purposes of determining the purchase price (based on the three day period
beginning on January 12) and $97.3 million at the time of issuance (based on the
public offering price). The Company also entered into the following debt
financing transactions concurrently with the acquisition of BRACC: (i) $165.0
million of guaranteed senior notes at a rate of 9.57% maturing in 2007; (ii)
$45.0 million of convertible subordinated notes at a rate of 6.85%, convertible
into 1,609,442 shares of Class A common stock at a conversion price of $27.96
per share and maturing in 2007; (iii) a variable-rate commercial paper vehicle
financing facility in the amount of $900 million; (iv) a $500 million
asset-backed note vehicle financing facility maturing in 2001 and 2002, composed
of a senior note in the amount of $472.5 million bearing interest at a rate of
7.35% and a subordinated note in the amount of $27.5 million bearing interest at
a rate of 7.80%; and (v) a $300
F-8
<PAGE> 94
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million five-year secured working capital facility bearing interest at an
initial rate of 1.75% over LIBOR, guaranteed by Budget Group and secured
primarily by accounts receivable, cash and unencumbered vehicles.
4. SUBSEQUENT EVENTS
Acquisition of Premier Car Rental, Inc. -- On July 31, 1997, the Company
acquired the fleet and certain other assets and assumed certain liabilities of
Premier Car Rental, Inc. ("Premier") for approximately $87.2 million. Premier
owns and operates 9,000 vehicles from 101 locations in 13 major U.S. markets.
Premier will operate as its own brand and continue to serve the insurance
replacement market. In 1996, Premier had revenues of approximately $61 million.
The Company does not expect this acquisition to have a material effect on
earnings in 1997.
In July 1997, the Company acquired the Budget franchise located in
Chattanooga, Tennessee for $3.2 million.
F-9
<PAGE> 95
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Budget Group, Inc.:
We have audited the accompanying consolidated balance sheet of Budget
Group, Inc. (a Delaware corporation formerly known as Team Rental Group, Inc.)
and subsidiaries as of December 31, 1996, and the related consolidated
statements of income, stockholders' equity (deficit) and cash flows for the year
then ended. 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 audit. The financial statements of Budget Group, Inc. as
of December 31, 1995, and for each of the two years in the period then ended
were audited by other auditors whose report dated April 12, 1996, expressed an
unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Budget Group,
Inc. and subsidiaries as of December 31, 1996, and the consolidated results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orlando, Florida,
March 14, 1997
(except with respect to certain matters
discussed in Note 16 as to which
the dates are April 22, April 29, July 10
and July 31, 1997)
F-10
<PAGE> 96
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Budget Group, Inc.:
We have audited the consolidated balance sheet of Budget Group, Inc.
(formerly known as Team Rental Group, Inc.) as of December 31, 1995, and the
related consolidated statements of income, stockholders' equity (deficit) and
cash flows for each of the two 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 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Budget Group, Inc. as of
December 31, 1995, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
April 12, 1996
F-11
<PAGE> 97
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 357 $ 50,490
Restricted cash............................................. 67,731 66,336
Trade and vehicle receivables, net of allowance for doubtful
accounts of $2,297 and $4,008............................. 20,928 31,302
Accounts receivable, related parties........................ 61 58
Vehicle inventory........................................... 8,938 16,413
Revenue earning vehicles, net............................... 219,927 319,257
Property and equipment, net................................. 12,503 18,502
Deferred financing fees, net of accumulated amortization of
$425 and $791............................................. 2,266 3,950
Franchise rights, net of accumulated amortization of $1,500
and $3,250................................................ 46,670 68,469
Other assets................................................ 6,942 10,022
Other intangible assets, net of accumulated amortization of
$35 in 1996............................................... -- 2,424
-------- --------
Total assets...................................... $386,323 $587,223
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable............................................... $318,233 $454,109
Capital lease obligations................................... 784 580
Accounts payable............................................ 14,698 14,601
Accrued and other liabilities............................... 9,315 16,526
Deferred income taxes....................................... 1,701 7,406
-------- --------
Total liabilities................................. 344,731 493,222
-------- --------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK WARRANT........................................ 2,000 2,000
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 250,000 shares authorized,
no shares issued or outstanding........................... -- --
Class A common stock, $.01 par value, one vote per share,
17,500,000 shares authorized, 5,257,116 and 9,357,050
shares issued............................................. 53 93
Class B common stock, $.01 par value, 10 votes per share,
2,500,000 shares authorized, 1,936,600 shares issued...... 19 19
Additional paid-in capital.................................. 41,984 89,856
Retained earnings (deficit)................................. (2,134) 2,363
Treasury stock, at cost (36,667 shares of Class A common
stock).................................................... (330) (330)
-------- --------
Total stockholders' equity........................ 39,592 92,001
-------- --------
Total liabilities and stockholders' equity........ $386,323 $587,223
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-12
<PAGE> 98
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Operating revenue:
Vehicle rental revenue.................................... $38,642 $107,067 $223,250
Retail car sales revenue.................................. -- 42,662 134,120
------- -------- --------
Total operating revenue........................... 38,642 149,729 357,370
------- -------- --------
Operating costs and expenses:
Direct vehicle and operating.............................. 9,439 13,704 35,098
Depreciation -- vehicles.................................. 7,382 27,476 60,735
Depreciation -- non-vehicle............................... 446 1,341 2,589
Cost of vehicle sales..................................... -- 38,021 113,747
Advertising, promotion and selling........................ 3,090 11,826 22,983
Facilities................................................ 4,398 11,121 20,406
Personnel................................................. 7,947 24,515 53,097
General and administrative................................ 1,515 6,686 11,605
Amortization.............................................. 229 859 1,843
------- -------- --------
Total operating costs and expenses................ 34,446 135,549 322,103
------- -------- --------
Operating income............................................ 4,196 14,180 35,267
------- -------- --------
Other (income) expense:
Vehicle interest expense.................................. 3,909 13,874 25,336
Non-vehicle interest expense.............................. 341 473 1,501
Interest income -- restricted cash........................ (670) (1,348) (781)
Non-recurring bank fees................................... -- -- 1,275
Related party interest expense............................ 190 159 118
------- -------- --------
Total other expense............................... 3,770 13,158 27,449
------- -------- --------
Income before income taxes.................................. 426 1,022 7,818
Provision for income taxes.................................. 176 685 3,321
------- -------- --------
Net income.................................................. $ 250 $ 337 $ 4,497
======= ======== ========
Weighted average common and common equivalent shares
outstanding............................................... 3,704 6,369 9,488
======= ======== ========
Earnings per common and common equivalent share............. $ 0.07 $ 0.05 $ 0.47
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-13
<PAGE> 99
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL RETAINED STOCKHOLDERS'
COMMON PAID-IN EARNINGS TREASURY EQUITY
STOCK CAPITAL (DEFICIT) STOCK (DEFICIT)
------ ---------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994................... $ 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 from nontaxable to taxable..... -- -- (1,169) -- (1,169)
Shares issued in business combination.... -- 200 -- -- 200
---- ------- ------- ----- -------
Balance, 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)
---- ------- ------- ----- -------
Balance, December 31, 1995................. 72 41,984 (2,134) (330) 39,592
Net income............................... -- -- 4,497 -- 4,497
Shares issued in business combination.... 2 2,725 -- -- 2,727
Warrants issued in conjunction with
financing............................. -- 686 -- -- 686
Net proceeds from stock offering......... 38 44,402 -- -- 44,440
Proceeds from exercise of stock
options............................... -- 59 -- -- 59
---- ------- ------- ----- -------
Balance, December 31, 1996................. $112 $89,856 $ 2,363 $(330) $92,001
==== ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-14
<PAGE> 100
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 250 $ 337 $ 4,497
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation............................................ 7,828 28,817 63,324
Amortization............................................ 534 1,761 2,396
Deferred income tax provision........................... (8) 540 2,479
Warrants issued in connection with financing............ -- -- 686
Provision for doubtful accounts......................... (282) 1,796 320
Changes in certain assets and liabilities, net of effects
of 1994, 1995 and 1996 acquisitions --
Receivables............................................. (871) (11,189) (6,230)
Vehicle inventory....................................... -- (7,995) (3,463)
Other assets............................................ (1,788) 387 (1,350)
Accounts payable........................................ (2,259) 9,484 (9,469)
Accrued and other liabilities........................... 256 (7,790) 1,189
--------- --------- ---------
Net cash provided by operating activities........... 3,660 16,148 54,379
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in restricted cash balance......................... (32,691) (13,271) 1,395
Proceeds from sale of revenue earning vehicles............ 73,728 293,905 460,550
Proceeds from sale of property and equipment.............. 51 -- --
Purchases of revenue-earning vehicles..................... (155,176) (315,863) (517,079)
Purchases of property and equipment....................... (637) (4,562) (2,608)
Purchases of franchise rights............................. (1,839) -- --
Payment for acquisitions, net of cash acquired............ (5,727) (6,507) (5,064)
--------- --------- ---------
Net cash used in investing activities............... (122,291) (46,298) (62,806)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of stock, net......................... 28,948 -- 44,499
Net increase (decrease) in vehicle obligations............ (5,760) 20,947 (220,901)
Net increase (decrease) in working capital facilities..... -- 6,890 (9,500)
Proceeds from notes payable --
Medium term notes....................................... 105,682 -- 176,000
Convertible subordinated notes.......................... -- -- 80,000
Related party........................................... 1,392 -- --
Other................................................... 2,610 3,399 --
Principal payments --
Related party........................................... (3,200) (276) (4,900)
Other................................................... (5,665) (259) (4,197)
Capital leases.......................................... (410) (666) (204)
Payment of financing fees................................. (1,614) (76) (2,237)
Distributions on redeemable preferred stock............... (183) -- --
Repayment of redeemable preferred stock................... (2,747) -- --
Dividends to common stockholders.......................... (47) -- --
Purchase of treasury stock................................ -- (330) --
--------- --------- ---------
Net cash provided by financing activities........... 119,006 29,629 58,560
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 375 (521) 50,133
Cash and cash equivalents, beginning of year................ 503 878 357
--------- --------- ---------
Cash and cash equivalents, end of year...................... $ 878 $ 357 $ 50,490
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-15
<PAGE> 101
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Budget Group, Inc. (the "Company") engages in the business of the daily
rental of vehicles, including cars, trucks and passenger vans and the sale of
late-model used vehicles. The Company is the largest United States franchisee of
Budget Rent a Car ("Budget"), operating franchises granted by Budget Rent a Car
Corporation ("BRACC") through its operating subsidiaries serving thirteen
metropolitan regions in the United States. These franchises include Philadelphia
and Pittsburgh, Pennsylvania; San Diego, California; Southern California
(excluding San Diego); Phoenix, Arizona; Cincinnati and Dayton, Ohio; Albany and
Rochester, New York; Charlotte, North Carolina; Richmond, Virginia; Hartford,
Connecticut and Fort Wayne, Indiana. The Company engages in the sale of
late-model used vehicles in San Diego and Los Angeles, California; Dayton and
Cincinnati, Ohio; Philadelphia, Pennsylvania; Charlotte, North Carolina;
Richmond, Virginia and Indianapolis, Indiana. MCK Realty, Inc. ("MCK") leases
certain facilities to the Company and is owned by the Company's principal
stockholders. Because MCK is controlled by the Company and the Company has
guaranteed the lease payments assigned to a bank, MCK is included in the
consolidated financial statements of the Company.
Basis of Presentation
Concurrent with the Company's 1994 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 its San Diego,
Albany, Richmond and Rochester franchises ("the combined companies") which,
accordingly, became wholly owned subsidiaries (the "Share Exchange"). The 1994,
1995 and 1996 consolidated financial statements include the accounts of Team
Rental Group, Inc., its wholly owned subsidiaries and MCK. 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
Restricted cash consists of Medium Term Notes proceeds not currently
invested in eligible revenue earning vehicles. Under the terms of the Medium
Term Notes Indentures, the Company is required to purchase revenue earning
vehicles with the proceeds or maintain the excess as restricted cash.
F-16
<PAGE> 102
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Vehicle Inventory
Vehicle inventory is stated at the lower of cost (determined based on
specific identification) or market.
Revenue-Earning Vehicles
Revenue-earning vehicles are stated at cost less 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 generally range from 1.0% to 2.5% 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.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is being provided
on the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings................................ 10-23 years
Equipment, furniture and fixtures........ 3-10 years
Capital leases and leasehold
improvements........................... Lesser of estimated useful lives or terms
of 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 method.
On July 9, 1996, the Company utilized proceeds from its public offering of
Class A common stock to repay a $10,000 bridge financing facility it had
obtained from a bank in the second quarter of 1996. In conjunction with this
bank financing, the Company issued warrants valued at $700, which are included
in additional paid-in capital, and paid additional fees of approximately $1,000.
As a result of this repayment, the Company wrote off all unamortized fees
related to this financing, totaling $1,275.
Prepaid Royalty Fees
Prepaid royalty fees of $1,217 and $739 (net of accumulated amortization of
$783 and $1,261) at December 31, 1995 and 1996, 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. Amortization
of the prepaid royalty fees of $203, $580 and $478 is reflected in direct
vehicle and operating expenses in the accompanying consolidated statements of
income for the years ended December 31, 1994, 1995 and 1996, respectively.
Franchise Rights
Franchise agreements are renewable for an unlimited number of one- and
five-year periods, subject to certain terms and conditions. Fees paid for
franchise rights are capitalized and amortized using the straight-line method
over forty years. The Company believes that the vehicle rental industry and,
F-17
<PAGE> 103
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
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 BRACC to maintain its international network of rental car
franchises, 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 future annual
cash flows generated by the franchise operations utilizing an appropriate
discount rate. Management has determined that no material impairment of
franchise rights existed at December 31, 1995 or 1996.
Other Intangible Assets
Other intangible assets consists of the goodwill recorded related to the
ValCar acquisition (see Note 3). Goodwill is amortized using the straight-line
method over forty years. Amortization expense of $35 is reflected in the
accompanying consolidated statement of income for the year ended December 31,
1996. The Company evaluates the realizability of its goodwill based upon the
nondiscounted cash flows and operating income expected to be generated by the
assets purchased in the acquisition giving rise to the goodwill. Any impairment
would be measured as the amount by which the carrying value of the goodwill
exceeds the present value of estimated future annual cash flows generated by the
assets purchased utilizing an appropriate discount rate. Management has
determined that no material impairment of goodwill existed at December 31, 1996.
Advertising, Promotion and Selling
Advertising, promotion and selling expense are charged to expense as
incurred. The Company incurred advertising expense of $412, $2,347 and $6,912 in
1994, 1995 and 1996, respectively.
Income Taxes
The Company accounts for income taxes using an asset and liability approach
that requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than enactments of changes in the tax law or rates. Changes in tax laws or rates
will be recognized in the future years in which they occur.
Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent 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 and common equivalent share for the years ended December 31, 1995 and
1996, were based on the weighted average number of common shares outstanding
during the year considering the acquisitions in each respective year and the
purchase of treasury stock.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"). SFAS No. 128 establishes new
F-18
<PAGE> 104
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
standards for computing and presenting earnings per share ("EPS"). Specifically,
SFAS No. 128 replaces the presentation of primary EPS with a presentation of
basic EPS, requires dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997; earlier application is not permitted. Management has
determined that the adoption of SFAS No. 128 will not have a material effect on
the accompanying consolidated financial statements.
Retention of Self-Insured Risks
At December 31, 1996, the Company has automobile liability insurance
coverage of up to $6,000, with a $500 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. 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 per occurrence, unless the vehicle rental company has negligently
maintained the vehicle or has "negligently entrusted" the vehicle to a rental
customer. In addition, a vehicle rental company can be held liable for damages
arising from use of its vehicles by its employees. The Company's Phoenix
operations are self-insured, with a $500 retention. The Company's workers
compensation coverage is subject to a $500 retention. The Company's general
liability coverage is $1,000 per occurrence, $2,000 aggregate coverage with no
retention.
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 claim experience and existing circumstances. Any
changes in estimates from this review process are reflected in operations
currently.
Environmental Costs
The Company's operations include the storage and dispensing of gasoline.
Expenses in connection with the remediation of accidental fuel discharges at
various locations are provided for when it is probable that obligations have
been incurred and amounts can be reasonably estimated. The Company has made no
material payments for environmental remediation that have not been reimbursed by
responsible parties.
Stock Options
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation ("SFAS No. 123"), 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 ("APB") Opinion No. 25, but are
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.
F-19
<PAGE> 105
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Effective January 1, 1996, the Company elected to adopt only the disclosure
requirements of SFAS No. 123. Accordingly, the Company will continue to account
for stock-based employee compensation under APB Opinion No. 25.
2. PUBLIC STOCK OFFERINGS
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.
The Company sold an additional 3,821,007 shares of Class A common stock on
July 2, 1996 at $13.00 per share to investors in a public offering resulting in
gross proceeds of $49,673 to the Company. Net proceeds to the Company after
offering expenses were $44,440. The net proceeds were used to repay certain
outstanding indebtedness and for general corporate purposes.
3. ACQUISITIONS
During 1994, 1995 and 1996, the Company acquired certain Budget franchise
operations, a retail vehicle sales operation and a commuter van pooling
operation. 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 1996 allocation for the ValCar Acquisition, as further
discussed below, is based on a preliminary estimate related to litigation claims
and may be revised at a later date. The accompanying consolidated statements of
income and cash flows reflect the operations of the acquired companies from
their respective acquisition dates.
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 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 in this transaction.
F-20
<PAGE> 106
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
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.
BRAC-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, for approximately $11,234 by issuing 1,050,000 shares of Class A common
stock.
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. VPSI
provides commuter van pooling services to business commuters in 22 states, and
operated a rental fleet of approximately 3,400 vans as of December 31, 1996.
Phoenix Franchise
In March 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 $5,000, promissory notes of $10,000 and 272,727
shares of Class A common stock.
ValCar Rental Car Sales, Inc.
On August 1, 1996, the Company acquired all of the outstanding stock of
ValCar Rental Car Sales, Inc. for $400 cash. ValCar owns and operates four
retail vehicle sales facilities in Indianapolis, Indiana, and was formerly owned
by a director and officer of the Company.
F-21
<PAGE> 107
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
If the 1995 and 1996 acquisitions had occurred at the beginning of 1995,
the Company's results of operations would have been as shown in the following
table. 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 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Operating revenue........................................... $ 337,926 $ 389,557
Net income.................................................. $ 3,512 $ 2,961
Earnings per common share................................... $ 0.46 $ 0.31
</TABLE>
4. REVENUE-EARNING VEHICLES
Revenue-earning vehicles consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Revenue-earning vehicles.................................... $245,849 $335,461
Less -- accumulated depreciation and amortization........... (25,922) (16,204)
-------- --------
$219,927 $319,257
======== ========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Land and buildings.......................................... $10,160 $ 13,729
Leasehold improvements...................................... 3,994 7,379
Furniture, fixtures and office equipment.................... 7,069 13,167
------- --------
21,223 34,275
Less -- accumulated depreciation and amortization........... (8,720) (15,773)
------- --------
$12,503 $ 18,502
======= ========
</TABLE>
Included in property and equipment at December 31, 1995 and 1996, are $827
and $580, respectively, of assets held under capital leases.
F-22
<PAGE> 108
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
6. NOTES PAYABLE
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Medium term notes:
Senior.................................................... $138,500 $304,500
Subordinated.............................................. 7,182 17,182
Convertible subordinated notes.............................. -- 80,000
Vehicle obligations......................................... 149,965 38,438
Working capital facilities.................................. 9,500 --
Related party obligations................................... 5,792 892
Other notes payable......................................... 7,294 13,097
-------- --------
$318,233 $454,109
======== ========
</TABLE>
Medium Term Notes
Medium term notes are comprised of notes issued by TFFC in August 1994
("TFFC-94 notes"), notes assumed in the acquisition of BRAC-OPCO, Inc. in
October 1995 ("OPCO notes") and notes issued by TFFC in December 1996 ("TFFC-96
notes")(collectively, "MTN notes"). MTN notes are secured by the underlying
vehicles and restricted cash of $66,336 at December 31, 1996.
The TFFC-94 notes consist of senior notes and subordinated notes. The
senior notes, with an aggregate principal balance of $100,000 at December 31,
1995 and 1996, bear interest at an average LIBOR rate, as defined, plus 0.75%
(6.38% per annum at December 31, 1996). Monthly principal payments of $16,667
commence in June 1999 with the last payment due in November 1999. The
subordinated notes, with an aggregate principal balance of $5,682 at December
31, 1995 and 1996, bear interest at an average LIBOR rate, as defined, plus
1.30% (6.93% per annum at December 31, 1996) and are payable in full in December
1999. Interest on the TFFC-94 notes is payable monthly.
The OPCO notes consist of senior notes and subordinated notes. The senior
notes, with an aggregate principal balance of $38,500 at December 31, 1995 and
1996, bear interest at an average LIBOR rate, as defined, plus 0.60% (6.23% per
annum at December 31, 1996). Monthly principal payments of $4,812 commence in
November 1997 with the last payment due in June 1998. The subordinated notes,
with an aggregate principal balance of $1,500 at December 31, 1995 and 1996,
bear interest at an average LIBOR rate, as defined, plus 1.0% (6.63% per annum
at December 31, 1996) and are payable in full in December 1998. Interest on the
OPCO notes is payable monthly.
The TFFC-96 notes consist of senior notes and subordinated notes. The
senior notes, with an aggregate principal balance of $166,000 at December 31,
1996, bear interest at 6.65% per annum. Monthly principal payments of $13,833
commence in 2001 with the last payment due in 2002. The subordinated notes, with
an aggregate principal balance of $10,000 at December 31, 1996, bear interest at
7.10% per annum and are payable in full in 2002. Interest on the TFFC-96 notes
is payable monthly.
Convertible Subordinated Notes
In December 1996, the Company issued convertible subordinated notes with an
aggregate principal amount of $80,000 bearing interest at 7% per annum due 2003.
At a conversion price of $20.07, the convertible subordinated notes are
convertible into 3,986,049 shares of Class A Common Stock. See Note 16.
F-23
<PAGE> 109
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Vehicle Obligations
Vehicle obligations consist of outstanding lines of credit to purchase
rental vehicles and retail car sales inventory. Collateralized lines of credit
at December 31, 1996, consist of $203,000 for rental vehicles and $26,000 for
retail car sales inventory with maturity dates ranging from April 1997 to May
1998. Vehicle obligations are collateralized by revenue earning vehicles
financed under these credit facilities and proceeds from the sale, lease or
rental of rental 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 7.0% to 8.75% at December 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.
In November 1996, Team Fleet Services Corporation ("TFSC") and VPSI, wholly
owned subsidiaries of the Company, entered into Revolving Credit Agreements with
NationsBank, National Association (South), as Agent (the "Agent") for the
lenders party thereto, providing for up to $100,000 and $50,000, respectively,
of financing for the acquisition of program vehicles (the "Revolving Credit
Facilities"). The interest rates of loans under the Revolving Credit Facilities
are, at the option of TFSC and VPSI and up to certain amounts, based on the
Agent's prime rate, LIBOR or CD rates. The weighted average interest rate of
loans outstanding under the Revolving Credit Facilities at December 31, 1996,
was 7.125%.
Monthly payments of interest are required on obligations relating to
vehicle inventory at prime plus .25% (8.50% per annum at December 31, 1996).
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
At December 31, 1996, the Company had an unutilized working capital
facility of $10,000, which requires monthly interest payments on the outstanding
balance at LIBOR plus 2.50% (8.125% at December 31, 1996). This facility, which
expires in April 1997, is collateralized by accounts receivable, vehicle
inventory, property and equipment, certain intangibles, investments and all
other personal property of the Company and guarantees of certain subsidiaries.
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, 1996, the
Company was in compliance with all covenants.
F-24
<PAGE> 110
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Future principal payments of notes payable at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ --------
<S> <C>
1997........................................................ $ 61,906
1998........................................................ 30,376
1999........................................................ 105,682
2000........................................................ 145
2001........................................................ 110,667
Thereafter.................................................. 145,333
--------
$454,109
========
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company leases facilities from entities owned by certain stockholders.
Operating lease payments for the years ended December 31, 1994, 1995 and 1996,
were $196, $220 and $227, respectively. MCK has assigned lease payments from the
Company to a bank.
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
$366 for the year ended December 31, 1994.
At December 31, 1995 and 1996, the Company had non-interest bearing notes
receivable totaling $61 and $58 due from a stockholder and director which are
payable on demand. Additionally, at December 31, 1996, the Company had a payable
to a stockholder and director in the amount of $1,500 which is included in
accrued and other liabilities on the accompanying consolidated balance sheet.
The outstanding balance bears interest at prime plus 2.0% (10.25% per annum at
December 31, 1996), is unsecured and is payable on demand.
Approximately $564 and $4,013 of cash and cash equivalents are on deposit
with or are being held as agent for the Company by a bank at December 31, 1995
and 1996, respectively. A stockholder and director of the Company serves on the
bank's board of directors.
In connection with the Los Angeles acquisition, the Company entered into a
franchise agreement with the seller to pay a royalty of 5% of the monthly gross
revenues derived from those operations, as well as the Company's San Diego
operations. A director of the Company is the Chief Executive Officer and a
general partner of the seller. In 1996, the Company paid the seller
approximately $3,700 in royalty fees in accordance with this agreement.
8. LEASES
The Company leases certain revenue earning vehicles and facilities under
leases that expire at various dates through May 2014. 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-25
<PAGE> 111
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Future minimum payments under noncancellable leases at December 31, 1996
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
- ------------------------ ------- ---------
<S> <C> <C>
1997...................................................... $ 210 $10,935
1998...................................................... 172 8,654
1999...................................................... 167 7,704
2000...................................................... 137 5,934
2001...................................................... 3 2,549
Thereafter................................................ -- 9,208
----- -------
$ 689 $44,984
=======
Less -- amounts representing interest..................... (109)
-----
$ 580
=====
</TABLE>
Rent expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------ ------- --------
<S> <C> <C> <C>
Revenue earning vehicles................................ $3,121 $ 1,518 $ 1,555
Facilities:
Minimum rentals....................................... 1,990 5,914 14,422
Contingent rentals.................................... 1,923 3,502 3,353
------ ------- --------
Total......................................... $7,034 $10,934 $ 19,330
====== ======= ========
</TABLE>
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
----- ----- -------
<S> <C> <C> <C>
Current:
Federal.................................................. $184 $ -- $ 92
State.................................................... -- 145 750
Deferred:
Federal.................................................. (23) 470 2,161
State.................................................... 15 70 318
---- ---- ------
$176 $685 $3,321
==== ==== ======
</TABLE>
F-26
<PAGE> 112
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
The provision for income taxes differs from the amount computed using the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
----- ----- -------
<S> <C> <C> <C>
Income tax provision at federal statutory rate............. $130 $348 $2,658
Effect of (earnings) losses of nontaxable (subchapter S)
companies................................................ 645 -- (87)
Nondeductible portion of amortization of franchise rights
and goodwill............................................. 12 94 306
State tax provision, net of federal benefit................ 30 215 391
Benefit of net operating loss carryforwards................ (645) -- --
Other...................................................... 4 28 53
---- ---- ------
$176 $685 $3,321
==== ==== ======
</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>
1995 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $13,195 $16,846
Non-deductible reserves................................... 2,267 5,459
Alternative minimum tax carryforward...................... 197 966
Valuation allowance....................................... (7,378) (9,515)
------- -------
8,281 13,756
------- -------
Deferred tax liabilities:
Difference between book and tax bases of revenue earning
vehicles and property and equipment.................... 8,690 19,327
Franchise rights.......................................... 1,292 1,835
------- -------
9,982 21,162
------- -------
Net deferred tax liability................................ $ 1,701 $ 7,406
======= =======
</TABLE>
Concurrent with the Share Exchange in 1994, 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.
At December 31, 1996, the Company and its subsidiaries have federal tax
loss carryforwards of approximately $43,360 expiring between December 2005 and
December 2011. 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 increase in
the valuation allowance during 1996 resulted from an increase related to net
operating loss carryforwards and uncertainty regarding their ultimate
realization.
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 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.
F-27
<PAGE> 113
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
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 Company accounts for these plans under APB Opinion No. 25 under
which no compensation cost has been recognized. Had compensation cost been
determined consistent with SFAS No. 123, the Company's net income and EPS would
have been reduced to the following unaudited pro forma amounts:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C> <C>
Net Income....................... As Reported...................... $ 377 $4,497
Pro Forma........................ (36) 3,375
Primary Earnings Per
Common and Common
Equivalent Share............... As Reported...................... 0.05 0.47
Pro Forma........................ (0.01) 0.36
</TABLE>
Because the SFAS No. 123 method of accounting has only been applied to
options granted in 1995 and 1996, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The ISO Plan provides for the issuance of up to 760,000 shares of Class A
or Class B 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 shares of Class A common
stock to directors of the Company who are not employees of the Company. The
Directors' Plan stock options are nonqualified, vest six months following the
date of grant 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.
F-28
<PAGE> 114
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
A summary of the status of the Company's two stock option plans at December
31, 1995 and 1996, and activity during the years then ended is presented in the
table and narrative below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding -- December 31, 1994.......................... 15,000 $ 9.50
Granted................................................. 202,000 9.50
-------
Outstanding -- December 31, 1995.......................... 217,000 9.50
Granted................................................. 547,650 11.70
Exercised............................................... (6,200) 9.50
Forfeited............................................... (8,600) 11.13
-------
Outstanding -- December 31, 1996.......................... 749,850 11.09
=======
</TABLE>
As of December 31, 1996, options for 585,850 shares and 164,000 shares of
Class A and Class B common stock, respectively, remained outstanding under the
Company's stock option plans.
<TABLE>
<CAPTION>
1995 1996
------ -------
<S> <C> <C>
Exercisable at end of year --
Shares.................................................... 15,000 247,700
Weighted average exercise price........................... $9.50 $9.76
Weighted average fair value of options granted during the
year...................................................... $4.52 $5.48
</TABLE>
At December 31, 1996, 62,500 of the 749,850 options outstanding have
exercise prices between $9.50 and $11.25 with a weighted average exercise price
of $10.55 and a weighted average remaining contractual life of 8.8 years. All of
these options are exercisable. The remaining 687,350 options have exercise
prices between $9.50 and $17.50, with a weighted average exercise price of
$11.14 and a weighted average remaining contractual life of 9.0 years. Of these
options, 185,200 are exercisable; their weighted average exercise price is
$9.50.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model. For options granted under the ISO Plan,
a risk-free rate of return of 6.21% and an expected life of three years were
assumed. For options granted under the Directors' Plan, a risk-free rate of
return of 6.49% and an expected life of seven years were assumed. Additionally,
for each option plan there was no expected dividend yield and an expected
volatility of 60%.
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. During 1996, the Company made discretionary contributions of
approximately $146.5 to the Profit Sharing Plan.
11. COMMON STOCK WARRANT
Concurrently with the Freedom River acquisition and in consideration of the
abatement of certain future royalty fees to BRACC with respect to Freedom
River's Philadelphia vehicle rental operation and other consideration received
from BRACC, the Company issued a warrant to BRACC (the "Common Stock Warrant")
to purchase 175,000 shares of Class A common stock at the initial public
offering price.
F-29
<PAGE> 115
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
The warrant became exercisable on August 24, 1996, and expires on August 24,
1999. Subsequent to August 24, 1998, and prior to August 24, 1999, BRACC will
have the right to cause the Company to repurchase the Common Stock Warrant for
$2,000. The Company has reserved Class A common stock for the Common Stock
Warrant.
12. COMMITMENTS AND CONTINGENCIES
Franchise Agreements
The Company has various franchise agreements with BRACC which require the
payment of monthly royalty fees. These fees vary from a flat fee of $13.25 per
car to 7.5% of gross rental revenues, as defined in the franchise agreements.
The above franchise agreements are 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 BRACC whereby trucks
owned by BRACC 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, 1994, 1995 and 1996 were $558, $1,027, and $1,451,
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, 1994, 1995 and 1996 were $2,348, $5,715 and $9,598, respectively.
Budget reservation fees expensed by the Company for the years ended December 31,
1994, 1995 and 1996 were $1,574, $3,904 and $6,375, respectively.
Regulatory and Environmental Matters
The Company is subject to various federal, state and local laws and
regulations that affect its operations, including those relating to the sale of
loss damage waivers, vicarious liability of vehicle owners, consumer protection,
advertising, used vehicle sales, the taxing and licensing of vehicles,
franchising operations and sales, and environmental protection and clean-up.
The Company maintains an environmental compliance program designed to
maintain compliance with applicable technical and operational requirements,
including periodic integrity testing of underground storage tanks and providing
financial assurance for remediation of spills or releases. The Company believes
that its operations currently are in compliance, in all material respects, with
such
F-30
<PAGE> 116
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
regulatory requirements. However, there are several technical specifications
regarding underground storage tanks applicable to the Company's facilities, many
of which will become effective in 1998. The Company believes that the remaining
costs of complying with these requirements for 1997 and 1998 will be
approximately $3 million.
Litigation
The Company has contingencies with respect to litigation arising in the
ordinary course of business. In the opinion of management, such litigation will
not result in any loss which would materially affect the financial position or
results of operations of the Company.
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.
Cash and Cash Equivalents, Restricted Cash, Receivables and Accounts Payable
The carrying amounts of these financial assets and liabilities at December
31, 1995 and 1996, approximate fair value because of the short maturity of these
instruments.
Notes Payable
The carrying amount of a portion of the Company's notes payable
approximates fair value at December 31, 1995 and 1996, since the debt is at
floating interest rates. The carrying amount of the Company's fixed-rate notes
payable approximates fair value at December 31, 1996, due to the recent issuance
of such debt.
Common Stock Warrant
The estimated fair value is based on a pricing model which considers stock
volatility and the put feature of the Common Stock Warrant. The estimated fair
value was $1,750 at December 31, 1996.
14. SUPPLEMENTAL CASH FLOW DISCLOSURES
In 1996, the Company issued approximately 272,727 shares of Class A common
stock with a value of $2,727 and notes payable of $10,000 for the 1996
acquisitions. The Company issued approximately 1,220,816 shares of Class A
common stock with a value of $12,837 and notes payable of $650 for the 1995
acquisitions.
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
F-31
<PAGE> 117
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
$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 Common Stock
Warrant of $2,000 for the abatement of certain fees (see Note 11).
The Company paid interest of $4,091, $13,764 and $26,955 in 1994, 1995 and
1996, respectively.
Income taxes of $182, $346 and $1,017 were paid in 1994, 1995 and 1996,
respectively.
15. 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
vehicles. Segment information for the year ended December 31, 1996, is as
follows:
<TABLE>
<CAPTION>
RETAIL VEHICLE VEHICLE
SALES RENTAL CONSOLIDATED
-------------- -------- ------------
<S> <C> <C> <C>
Sales to unaffiliated customers.................. $134,120 $223,250 $357,370
Depreciation and amortization.................... 1,482 63,685 65,167
Operating income................................. 1,857 33,410 35,267
Income before provision for income taxes......... 409 7,409 7,818
Identifiable assets.............................. 48,885 538,338 587,223
Capital expenditures -- revenue earning
vehicles....................................... -- 517,079 517,079
</TABLE>
Segment information for the year ended December 31, 1995, is as follows:
<TABLE>
<CAPTION>
RETAIL VEHICLE VEHICLE
SALES RENTAL CONSOLIDATED
-------------- -------- ------------
<S> <C> <C> <C>
Sales to unaffiliated customers.................. $42,662 $107,067 $149,729
Depreciation and amortization.................... 193 29,483 29,676
Operating income................................. 1,254 12,926 14,180
Income (loss) before provision for income
taxes.......................................... 1,869 (847) 1,022
Identifiable assets.............................. 30,195 356,128 386,323
Capital expenditures -- revenue earning
vehicles....................................... -- 315,863 315,863
</TABLE>
The Company operated in only the rental segment for the year ended December
31, 1994.
F-32
<PAGE> 118
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
16. SUBSEQUENT EVENTS
On April 29, 1997, pursuant to stock purchase agreements entered into on
January 13, 1997, the Company completed its acquisition of Budget Rent a Car
Corporation ("BRACC") in a purchase transaction and changed its name to Budget
Group, Inc. In conjunction with and concurrent to the BRACC acquisition, the
Company sold 8,625,000 shares of Class A common stock at a price of $21.625 in a
public offering raising proceeds, net of offering costs incurred, of $177,200.
The Company also issued 4,500 shares of Series A convertible, non-voting
preferred stock, each share of which is convertible into 1,000 shares of the
Company's Class A common stock, to Ford Motor Company. The common shares
underlying the preferred stock had a value of approximately $105,800 for
purposes of determining the purchase price (based on the three day period
surrounding January 13, 1997) and $95,175 at the time of issuance (based on the
public offering price). The Company also entered into the following debt
financing transactions concurrently with the acquisition: (i) $165,000 of
guaranteed senior notes at a rate of 9.57% maturing 2007; (ii) $45,000 of
convertible subordinated notes at a rate of 6.85%, convertible into 1,609,442
shares of Class A common stock based on a conversion price of $27.96 and
maturing in 2007; (iii) a variable-rate commercial paper vehicle financing
facility in the amount of $900,000; (iv) a $500,000 asset-backed note vehicle
financing facility maturing in 2001 and 2002, composed of a senior note in the
amount of $472,500 bearing interest at a rate of 7.35% and a subordinated note
in the amount of $27,500 bearing interest at a rate of 7.80%; and (v) a $300,000
five-year accrued working capital facility bearing interest at an initial rate
of 1.75% over LIBOR, guaranteed by the Company and secured primarily by accounts
receivable, cash and unencumbered vehicles.
In connection with the above mentioned debt financing transactions, the
Company extended the maturity of the Convertible Subordinated Notes (see Note 6)
to 2007.
In order to accommodate the shares issued in connection with the BRACC
acquisition, on April 22, 1997, the shareholders of the Company approved an
increase in the number of authorized Class A common shares to 35,000,000 shares.
On July 31, 1997, the Company acquired the fleet and certain other assets
and assumed certain liabilities of Premier Car Rental, Inc. ("Premier") for
approximately $87,200. Premier owns and operates 9,000 vehicles from 101
locations in 13 major U.S. markets. Premier will operate as its own brand and
continue to serve the insurance replacement market, and the Company does not
expect this acquisition to have a material effect on its earnings in 1997.
On July 10, 1997, the Company acquired the Budget franchise located in
Chattanooga, Tennessee for $3,200.
F-33
<PAGE> 119
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 59,547 $ 52,877
Trade and vehicle receivables, net.......................... 135,371 181,209
Accounts receivable, related parties........................ 67,192 0
Prepaid expenses, inventories and deposits.................. 50,146 51,151
Vehicle inventory........................................... 14,299 14,828
Revenue earning vehicles, net............................... 1,303,975 1,494,755
Property and equipment, net................................. 114,537 113,799
Other assets................................................ 53,102 50,555
Intangibles, including goodwill, net........................ 529,946 524,978
---------- ----------
Total assets...................................... $2,328,115 $2,484,152
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses....................... $ 344,780 $ 353,851
Accounts payable -- Ford.................................... 2,994 20,922
Income taxes payable........................................ 812 (4,495)
Notes payable -- Ford....................................... 846,708 1,016,363
Notes payable............................................... 983,678 970,951
---------- ----------
Total liabilities................................. 2,178,972 2,357,592
Mandatory redeemable preferred stock........................ 5,178 5,272
STOCKHOLDERS' EQUITY
Common stock................................................ -- --
Additional paid-in-capital.................................. 564,994 564,994
Costs incurred for raising equity capital................... (9,555) (9,555)
Pension liability adjustment................................ (12,409) (12,409)
Foreign currency translation adjustment..................... (7,497) (10,639)
Retained earnings........................................... (391,568) (411,103)
---------- ----------
Total stockholders' equity........................ 143,965 121,288
---------- ----------
Total liabilities and stockholders' equity........ $2,328,115 $2,484,152
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-34
<PAGE> 120
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Operating revenue:
Rental revenue............................................ $221,778 $228,135
Car sales revenue......................................... 22,734 20,913
Royalties and other revenue............................... 17,259 17,363
-------- --------
Total operating revenue........................... 261,771 266,411
-------- --------
Operating expenses:
Direct vehicle and operating.............................. 25,871 31,713
Depreciation -- vehicles.................................. 54,583 65,439
Depreciation -- nonvehicle................................ 6,502 6,413
Cost of car sales......................................... 19,598 18,430
Advertising, promotion and selling........................ 19,441 27,585
Facilities................................................ 28,471 28,904
Personnel................................................. 61,939 63,985
General and administrative................................ 17,638 14,430
Amortization.............................................. 4,185 4,180
-------- --------
Total operating expenses.......................... 238,228 261,079
-------- --------
Operating income............................................ 23,543 5,332
-------- --------
Other (income) expense:
Vehicle interest.......................................... 22,949 22,589
Other interest, net....................................... 7,265 7,043
-------- --------
Total other (income) expense...................... 30,214 29,632
-------- --------
Income before income taxes.................................. (6,671) (24,300)
Provision for income taxes (benefit)........................ 600 (4,860)
-------- --------
Net loss.................................................... $ (7,271) $(19,440)
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-35
<PAGE> 121
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND THE
THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COSTS
INCURRED FOREIGN
ADDITIONAL FOR RAISING PENSION CURRENCY
PREFERRED COMMON PAID-IN EQUITY LIABILITY TRANSLATION ACCUMULATED
STOCK STOCK CAPITAL CAPITAL ADJUSTMENT ADJUSTMENT DEFICIT
--------- -------- ---------- ----------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993.................. $309,000 $ -- $ 1,000 $(9,555) $ (6,388) $(15,899) $(218,600)
Dividends in
arrears............. -- -- -- -- -- -- (15,000)
Net income............ -- -- -- -- -- -- 1,125
Pension liability
adjustment.......... -- -- -- -- 144 -- --
Foreign currency
translation......... -- -- -- -- -- 4,082 --
-------- -------- -------- ------- -------- -------- ---------
Balance at December 31,
1994.................. 309,000 -- 1,000 (9,555) (6,244) (11,817) (232,475)
Dividends in
arrears............. -- -- -- -- -- -- (15,000)
Net loss.............. -- -- -- -- -- -- (132,640)
Pension liability
adjustment.......... -- -- -- -- (8,866) -- --
Foreign currency
translation......... -- -- -- -- -- 495 --
-------- -------- -------- ------- -------- -------- ---------
Balance at December 31,
1995.................. 309,000 -- 1,000 (9,555) (15,110) (11,322) (380,115)
Dividends in
arrears............. -- -- -- -- -- -- --
Series A............ -- -- -- -- -- -- (8,750)
Series X............ -- -- -- -- -- -- (172)
Net loss.............. -- -- -- -- -- -- (2,531)
Exchange of preferred
stock............... (309,000) -- 563,994 -- -- -- --
Pension liability
adjustment.......... -- -- -- -- 2,701 -- --
Foreign currency
translation......... -- -- -- -- -- 3,825 --
-------- -------- -------- ------- -------- -------- ---------
Balance at December 31,
1996.................. -- -- 564,994 (9,555) (12,409) (7,497) (391,568)
Dividends in
arrears............. -- -- -- -- -- -- (95)
Net loss.............. -- -- -- -- -- -- (19,440)
Foreign currency
translation......... -- -- -- -- -- (3,142) --
-------- -------- -------- ------- -------- -------- ---------
Balance at March 31,
1997.................. $ -- $ -- $564,994 $(9,555) $(12,409) $(10,639) $(411,103)
======== ======== ======== ======= ======== ======== =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-36
<PAGE> 122
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1997
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (7,271) $ (19,440)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation........................................... 60,035 71,852
Intangible Amortization................................ 4,185 4,180
Provision for losses on accounts receivable............ 690 (709)
(Gain)/Loss on sale of vehicles and equipment.......... (5,077) (2,292)
Changes in operating assets and liabilities:
Receivables.......................................... 41,689 22,063
Vehicles held for resale............................. (2,891) (529)
Prepaid expenses, inventories and deposits........... (5,573) (1,005)
Income taxes payable................................. (18) (5,307)
Accounts payable and accrued expenses................ (12,943) 26,998
--------- -----------
Total adjustments................................. 80,097 115,251
--------- -----------
Net cash provided by operating activities................... 72,826 95,811
Cash flows from investing activities:
Purchase of vehicles...................................... (685,527) (770,814)
Proceeds from the sale of vehicles........................ 535,505 511,554
Purchases of property, plant and equipment................ (5,437) (3,791)
Proceeds from the sale of property, plant and equipment... 2,202 2,651
Investment in joint ventures and other.................... 5,377 991
--------- -----------
Net cash used in investing activities....................... (147,880) (259,409)
Cash flows from financing activities:
Proceeds from revolving credit/notes payable to banks and
other notes payable.................................... 201,178 190,579
Principal payments of revolving credit/notes payable to
banks and other notes payable.......................... (199,693) (185,291)
Proceeds from fleet lender notes.......................... 608,827 735,035
Principal payments on fleet lender notes.................. (570,310) (577,635)
Proceeds from commercial paper............................ 859,753 3,621,502
Principal payments on commercial paper.................... (855,467) (3,627,262)
--------- -----------
Net cash provided by financing activities................... 44,288 156,928
--------- -----------
Net increase in cash and cash equivalents................... (30,766) (6,670)
Cash and cash equivalents, beginning of period.............. 95,872 59,547
--------- -----------
Cash and cash equivalents, end of period.................... $ 65,106 $ 52,877
========= ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-37
<PAGE> 123
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
(1) Interim financial information as of March 31, 1997 and for the three
months ended March 31, 1997 and 1996 is unaudited. Management believes that the
unaudited, interim financial statements reflect all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of the Company's
consolidated financial position as of March 31, 1997 and the consolidated
results of operations and cash flows for the three months ended March 31, 1997
and 1996. Information for the interim periods is not necessarily indicative of
results to be expected for the full year.
F-38
<PAGE> 124
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors of
Budget Rent a Car Corporation:
We have audited the accompanying consolidated balance sheets of Budget Rent
a Car Corporation and subsidiaries as of December 31, 1995 and 1996 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Budget Rent
a Car Corporation and subsidiaries as of December 31, 1995 and 1996 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 18, 1997
F-39
<PAGE> 125
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
(IN THOUSANDS EXCEPT SHARE
DATA)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 95,872 $ 59,547
Receivables:
Vehicle rental and sales, less allowance of $29,133 in
1995 and $36,271 in 1996............................... 90,707 79,296
Royalty fees and other amounts due from franchisees, less
allowance of $9,000 in 1995 and $5,458 in 1996......... 38,186 31,656
Installment notes, $617 in 1995 and $835 in 1996, due
within one year........................................ 6,758 8,071
Vehicle related programs -- Ford.......................... 89,283 67,192
Vehicle related programs -- other......................... 5,292 2,155
Other..................................................... 10,806 14,193
---------- ----------
241,032 202,563
Prepaid expenses and taxes, inventories and deposits........ 53,452 50,146
Vehicles held for sale...................................... 11,756 14,299
Vehicles, at cost........................................... 1,498,060 1,449,476
Less accumulated depreciation............................. (144,071) (145,501)
---------- ----------
1,353,989 1,303,975
Property and equipment, at cost:
Land...................................................... 31,990 32,652
Buildings and leasehold improvements...................... 113,863 120,900
Furniture and equipment................................... 102,991 107,275
Construction in progress.................................. 3,068 5,525
---------- ----------
251,912 266,352
Less accumulated depreciation and amortization......... (140,030) (151,815)
---------- ----------
111,882 114,537
Other assets................................................ 75,920 53,102
Intangibles, including goodwill, less accumulated
amortization of $109,746 in 1995 and $126,715 in 1996..... 544,212 529,946
---------- ----------
$2,488,115 $2,328,115
========== ==========
</TABLE>
F-40
<PAGE> 126
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
(IN THOUSANDS EXCEPT SHARE
DATA)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses, including outstanding
checks of $31,840 in 1995 and $27,410 in 1996............. $ 246,694 $ 207,531
Accounts payable -- Ford.................................... 22,909 2,994
Current income taxes payable................................ 93 812
Self-insurance liability.................................... 155,324 137,249
Notes payable -- Ford....................................... 989,646 846,708
Notes payable -- other...................................... 928,301 983,678
Mandatory Redeemable Preferred Stock:
Series A, 10% cumulative, redeemable, par value $.01,
stated value $1,000; 150,000 shares authorized; 150,000
shares issued and outstanding, including $101,250 ($675
per share) in 1995 of dividends in arrears............. 251,250 --
Series X, 7.5% cumulative, redeemable, par value $.01,
stated value $1,000; 291,000 shares authorized,
5,006.46 shares issued and outstanding, including $172
($34 per share) in 1996 of dividends in arrears........ -- 5,178
Stockholders' equity:
Preferred stock:
Series B, cumulative, participating, par value $.01,
stated value $1,000; 309,000 shares authorized;
309,000 shares issued and outstanding in 1995........ 309,000 --
Common stock, par value $.01; 10,000 shares authorized,
issued and outstanding................................. -- --
Additional paid-in capital................................ 1,000 564,994
Costs incurred for raising equity capital................. (9,555) (9,555)
Pension liability adjustment.............................. (15,110) (12,409)
Foreign currency translation adjustment................... (11,322) (7,497)
Accumulated deficit....................................... (380,115) (391,568)
---------- ----------
(106,102) 143,965
---------- ----------
$2,488,115 $2,328,115
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE> 127
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Vehicle rental....................................... $1,011,203 1,034,873 963,764
Retail car sales..................................... 77,999 83,795 91,503
Royalty fees......................................... 53,147 57,861 60,352
Other................................................ 13,417 16,941 17,202
---------- ---------- ----------
1,155,766 1,193,470 1,132,821
---------- ---------- ----------
Expenses:
Direct vehicle and operating......................... 134,126 153,081 121,288
Depreciation -- vehicles............................. 257,356 323,619 263,846
Depreciation and amortization -- nonvehicle.......... 21,410 19,520 26,645
Cost of vehicles sold at retail...................... 67,314 72,416 78,944
Advertising, promotion and selling................... 99,738 106,446 83,304
Occupancy............................................ 110,386 113,286 114,325
Personnel............................................ 269,370 280,901 248,655
General and administrative........................... 69,117 88,612 54,194
Intangible amortization.............................. 16,874 17,006 16,969
---------- ---------- ----------
1,045,691 1,174,887 1,008,170
---------- ---------- ----------
Earnings before interest and income taxes.............. 110,075 18,583 124,651
Interest expense....................................... 104,950 149,909 124,182
---------- ---------- ----------
Income (loss) before income taxes...................... 5,125 (131,326) 469
Provision for income taxes............................. 4,000 1,314 3,000
---------- ---------- ----------
Net income (loss)...................................... $ 1,125 (132,640) (2,531)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-42
<PAGE> 128
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COSTS
INCURRED FOREIGN
ADDITIONAL FOR RAISING PENSION CURRENCY
PREFERRED COMMON PAID-IN EQUITY LIABILITY TRANSLATION ACCUMULATED
STOCK STOCK CAPITAL CAPITAL ADJUSTMENT ADJUSTMENT DEFICIT
--------- -------- ---------- ----------- ---------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1993............ $309,000 $ -- $ 1,000 $(9,555) $ (6,388) $(15,899) $(218,600)
Dividends in
arrears.......... -- -- -- -- -- -- (15,000)
Net income.......... -- -- -- -- -- -- 1,125
Pension liability
adjustment....... -- -- -- -- 144 -- --
Foreign currency
translation...... -- -- -- -- -- 4,082 --
-------- -------- -------- ------- -------- -------- ---------
Balance at December
31, 1994............ 309,000 -- 1,000 (9,555) (6,244) (11,817) (232,475)
Dividends in
arrears.......... -- -- -- -- -- -- (15,000)
Net loss............ -- -- -- -- -- -- (132,640)
Pension liability
adjustment....... -- -- -- -- (8,866) -- --
Foreign currency
translation...... -- -- -- -- -- 495 --
-------- -------- -------- ------- -------- -------- ---------
Balance at December
31, 1995............ 309,000 -- 1,000 (9,555) (15,110) (11,322) (380,115)
Dividends in
arrears:......... -- -- -- -- -- -- --
Series A......... -- -- -- -- -- -- (8,750)
Series X......... -- -- -- -- -- -- (172)
Net loss............ -- -- -- -- -- -- (2,531)
Exchange of
preferred
stock............ (309,000) -- 563,994 -- -- -- --
Pension liability
adjustment....... -- -- -- -- 2,701 -- --
Foreign currency
translation...... -- -- -- -- -- 3,825 --
-------- -------- -------- ------- -------- -------- ---------
Balance at December
31, 1996............ $ -- $ -- $564,994 $(9,555) $(12,409) $ (7,497) $(391,568)
======== ======== ======== ======= ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE> 129
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ----------- ------------
<S> <C> <C> <C>
Operating activities:
Net income (loss)............................... $ 1,125 $ (132,640) $ (2,531)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 278,766 343,140 290,491
Intangible amortization...................... 16,874 17,006 16,969
Gain on sale of vehicles and equipment....... (25,389) (20,333) (14,137)
Provision for losses on accounts
receivable................................. 9,205 9,581 6,350
Equity in (earnings) loss of equity
investees.................................. 61 (1,665) --
Changes in operating assets and liabilities,
net of effects from franchise acquisitions:
Receivables................................ (12,537) (23,998) 32,118
Prepaid expenses and taxes, inventories and
deposits................................ (3,065) 2,710 3,306
Vehicles held for sale..................... (2,278) (2,082) (2,543)
Accounts payable and accrued expenses...... 34,458 (2,674) (56,377)
Current income taxes payable............... 434 (341) 719
Estimated self-insurance liability......... (16,861) (14,760) (18,075)
------------ ----------- ------------
Net cash provided by operating activities......... 280,793 173,944 256,290
------------ ----------- ------------
Investing activities:
Purchase of vehicles............................ (2,841,717) (2,783,295) (2,196,399)
Proceeds from sale of vehicles.................. 2,402,724 2,666,523 2,000,129
Purchase of property and equipment.............. (14,692) (19,144) (25,265)
Proceeds from the sale of property and
equipment.................................... 8,846 8,940 7,180
Changes in other assets......................... 33,029 (53,962) 9,301
------------ ----------- ------------
Net cash used in investing activities............. (411,810) (180,938) (205,054)
------------ ----------- ------------
Financing activities:
Proceeds from revolving credit facility and
other notes payable.......................... 2,130,732 2,101,462 839,349
Principal payments on revolving credit facility
and other notes payable...................... (2,108,407) (1,917,026) (823,057)
Proceeds from fleet lender notes................ 2,021,290 1,739,199 2,194,033
Principal payments on fleet lender notes........ (2,114,124) (1,833,544) (2,353,082)
Proceeds from commercial paper.................. 10,098,459 7,777,064 10,878,540
Principal payments on commercial paper.......... (10,354,161) (7,831,494) (10,823,344)
Proceeds from notes payable to other vehicle
lenders...................................... 500,000 -- --
------------ ----------- ------------
Net cash provided by (used in) financing
activities...................................... 173,789 35,661 (87,561)
------------ ----------- ------------
Increase (decrease) in cash and cash
equivalents..................................... 42,772 28,667 (36,325)
Cash and cash equivalents at beginning of year.... 24,433 67,205 95,872
------------ ----------- ------------
Cash and cash equivalents at end of year.......... $ 67,205 $ 95,872 $ 59,547
============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE> 130
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
(1) SIGNIFICANT ACCOUNTING POLICIES
General
On March 30, 1989, pursuant to an agreement and plan of merger, as amended,
Budget Rent a Car Corporation (the Company) became a wholly owned subsidiary of
Beech Holdings Corp. (Holdings). Effective December 31, 1995, Holdings was
merged with and into the Company (the Merger). All shares of Holdings stock
outstanding prior to the Merger were retired and new shares of Company stock,
with rights and preferences similar to the retired Holdings shares, were issued
to the stockholders of Holdings. The accompanying financial statements are
presented as if the Merger had taken place on January 1, 1994. The most
significant impact of the Merger on the consolidated financial statements of the
Company was to increase intangible assets (and amortization expense) and to
increase stockholders' equity.
On July 16, 1996, pursuant to a Recapitalization Plan approved by the
Company's Board of Directors and stockholders, the Company exchanged all
previously issued and outstanding shares of Preferred A and Preferred B stock
for 5,006.46 shares of a new series (Series X) of mandatory redeemable preferred
stock. As a result of the exchange, additional paid-in capital increased
$563,994, while Series B preferred stock, at stated value, decreased $309,000
and mandatory redeemable preferred stock (Series A) was reduced by $260,000. See
note 11 to the consolidated financial statements.
Description of Business
The Company is engaged in the business of vehicle rental through both owned
and franchised operations. Company owned vehicle rental operations are located
primarily throughout the United States and Western Europe. The largest
concentration (approximately 25%) of vehicle rental assets is located in the
highly competitive Florida market. Franchised vehicle operations are located
worldwide. Customers are mainly business and leisure travelers. No customer
accounts for more than 10% of the Company's revenues.
Principles of Consolidation
The consolidated financial statements include the accounts and operations
of the Company and its majority-owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation. Investments in
less than majority-owned entities are accounted for using the equity method,
under which the Company's share of operating results are reflected in income as
earned and dividends are credited against the investment when received.
Cash and Cash Equivalents
Cash equivalents include all highly liquid investments with an original
maturity of three months or less.
Computer Software Systems
License fees related to the Company's purchased reservation system and
associated applications and databases are capitalized and amortized over ten
years. Costs associated with the internal development of other computer software
systems and system enhancements are capitalized and amortized over three years.
F-45
<PAGE> 131
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangibles, Including Goodwill
Costs in excess of the fair value of net assets acquired as a result of the
acquisition of the Company and in conjunction with acquisitions of franchise
vehicle rental operations are capitalized and amortized over 40 years on the
straight-line method.
The carrying value of goodwill is reviewed whenever events or changes in
circumstances indicate that the carrying value may not be recoverable through
projected undiscounted future operating cash flows. Although no impairment is
indicated at December 31, 1996, the assessment of recoverability will be
impacted if estimated projected undiscounted operating cash flows are not
achieved.
Other Revenues
Other revenues largely consist of income before interest and taxes for
insurance and credit card processing operations, the Company's share of
operating results of equity investees and revenues generated from miscellaneous
services provided to the Company's franchisees.
Vehicle Dispositions
Repurchase programs with vehicle manufacturers require the manufacturers to
repurchase the vehicles after varying time frames at agreed upon prices (subject
to defined condition and mileage standards). Vehicles subject to these programs
are capitalized and depreciated such that no gain or loss is realized upon
disposition.
Gains or losses realized on vehicles sold through the wholesale market are
recorded as adjustments to depreciation expense.
Depreciation and Amortization
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Estimated useful lives range from 25 years
for buildings to three to seven years for furniture and equipment. Costs of
leasehold improvements are amortized on the straight-line method over the
shorter of the lease term or the estimated useful life of the related assets.
Vehicles are depreciated at rates ranging from 1.0% to 2.5% per month, depending
on vehicle type.
Advertising, Promotion and Selling
Advertising, promotion and selling costs are expensed as incurred. The
Company incurred advertising expenses of $33,326, $38,552 and $31,201 in 1994,
1995 and 1996, respectively.
Environmental Costs
Environmental remediation costs are recorded in accrued expenses based on
estimates of known environmental remediation exposures when it becomes probable
that a liability has been incurred. Environmental exposures are largely related
to underground storage tanks.
Expenditures are expected to be made over the next three years. A
receivable is recorded for amounts recoverable from third-parties when
collection becomes probable.
Self-insurance Liability
The Company is self-insured with respect to personal and property liability
claims up to specified limits. Third-party insurance is maintained for claims in
excess of the limits. A liability is recorded for known claims and for incurred
but not reported incidents based on actuarially computed estimates of
F-46
<PAGE> 132
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expected loss. The liability recorded as a result of these actuarially computed
estimates may experience material changes from year to year as incurred but not
reported incidents become known and known claims are settled.
The Company maintained unused letters of credit amounting to $122,324 and
$89,272 at December 31, 1995 and 1996, respectively, largely in support of its
insurance liability in certain states and supporting the reimbursement of claims
paid by third-party claims administrators.
Income Taxes
Deferred taxes are recognized to the extent they are expected to be payable
upon distribution of earnings of foreign and unconsolidated subsidiaries. The
Company uses a September 30 fiscal year for U.S. Federal income tax purposes.
The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities, as measured by the enacted tax rates which will be in effect
when those temporary differences are expected to be recovered or settled.
Deferred tax expense is the result of changes in the net deferred tax assets and
liabilities. The effect of a change in tax rates is recognized in the period
that includes the enactment date.
Translation of Foreign Financial Statements
The financial statements of the Company's foreign affiliates have been
translated into U.S. dollars in accordance with SFAS No. 52. Accordingly, assets
and liabilities of foreign operations are translated at period-end rates of
exchange, with any resultant translation adjustments reported as a separate
component of stockholders' equity. Income statement accounts are translated at
average exchange rates for the period and gains and losses from foreign currency
transactions are included in net income.
Derivatives
Premiums paid for purchased interest rate cap agreements are amortized to
interest expense over the terms of the cap. Unamortized premiums are included in
prepaid expenses in the balance sheet. Accounts receivable under cap agreements
are accrued with a corresponding reduction of interest expense.
Gains and losses on foreign exchange contracts and futures related to
qualifying hedges of firm commitments or anticipated transactions are deferred
and are recognized in income when the hedged transaction occurs. The Company
does not engage in speculative derivatives.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent 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.
Changes in Accounting Estimates
During 1994, 1995 and 1996 the Company recorded adjustments related to
prior year actuarial estimates of its self-insurance liability. The effect of
these adjustments was to increase income before
F-47
<PAGE> 133
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
taxes by approximately $8,000 in 1994, to decrease income before taxes by
approximately $15,000 in 1995 and to increase income before taxes by
approximately $19,000 in 1996.
Reclassifications
Certain amounts in the 1994 and 1995 consolidated financial statements have
been reclassified to conform with the current year presentation.
(2) VEHICLES, AT COST
Vehicles, at cost largely represent revenue earning cars and trucks. At
December 31, 1995 and 1996 the net book value of vehicles subject to repurchase
programs was approximately $1,077,000 and $940,047, respectively.
(3) REORGANIZATION AND CENTRALIZATION
The accompanying financial statements for 1995 include charges and accruals
of approximately $14,600 ($9,300 in personnel expense and $5,300 in general and
administrative expense) related to a reorganization and centralization primarily
of the finance and administrative functions of the Company (the
"Reorganization"). In conjunction with the Reorganization, approximately 450
employees were identified for termination, primarily in finance and operations
management. As of December 31, 1996, all affected employees have been terminated
or accepted other open positions.
At December 31, 1996, the remaining accruals relating to the Reorganization
totaled approximately $2,300. During 1996, amounts paid and non-cash accrual
reductions totaled approximately $11,000 and $1,300, respectively.
(4) OTHER ASSETS
Other assets include purchased software and capitalized software systems
development costs, net of accumulated amortization, which amount to
approximately $65,351 and $53,101 at December 31, 1995 and 1996, respectively.
In addition, other assets includes the Company's 50% investment in Compass
Computer Services, Inc. (Compass) and a 20% investment in a foreign rental
operation. Compass provides, among other services, reservation data processing.
The Company received dividends from Compass of $850, $150 and $8,088 during
1994, 1995 and 1996, respectively. In 1996, $5,000 of the dividends represents
the fair value of property and equipment received. The combined revenues of the
Company's investees during 1994, 1995 and 1996 amount to less than 10% of
consolidated revenues. At December 31, 1996, the amount of undistributed
earnings of Compass included in consolidated accumulated deficit is not
significant.
F-48
<PAGE> 134
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) NOTES PAYABLE
Notes payable at December 31 consist of the following:
<TABLE>
<CAPTION>
FINAL
INTEREST RATE MATURITY 1995 1996
---------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Fleet lender revolving
notes................. 7.23% to 8.40% 1997 $598,710 $426,370
Commercial paper
payable............... 5.20% to 6.35% 1997 312,320 367,516
Vehicle lender term
notes................. 6.02% 1999 500,000 500,000
Revolving credit
facility.............. 7.73% 1997 392,718 418,218
Foreign notes........... 4.06% to 11.55% 1997 to 2012 58,893 71,676
Note payable to
vendor................ 6.20% 1998 39,975 35,875
Notes payable to former
owners of franchises
purchased by the
Company............... 10.00% to 12.00% 1997 to 1999 2,038 1,562
Other................... 5.48% to 9.00% 1997 to 2007 13,293 9,169
---------------- -------------- ---------- ----------
$1,917,947 $1,830,386
========== ==========
</TABLE>
Fleet lender revolving notes: The fleet lender revolving notes are secured
by the applicable vehicles and vehicle program receivables. The notes bear
interest at rates that vary with commercial paper rates or the prime rate. The
Company makes monthly principal payments based on depreciation of the related
vehicles adjusted for net additions or disposals. It is the Company's intention
and ability to renew the fleet lender revolving notes or to obtain financing
under similar terms when the present agreements expire. At December 31, 1995 and
1996, $593,937 and $426,370, respectively, are due to Ford.
Commercial paper payable: The commercial paper payable (the "paper") is
secured by the applicable vehicles and vehicle program receivables. Under
limited circumstances the paper may be repaid by draws under a related, bank
provided liquidity facility ($725,000) or a related letter of credit ($120,000).
The paper is issued periodically with maturities up to 90 days. It is the
Company's intention and ability to renew the liquidity facility and letter of
credit or to obtain financing under similar terms when the present agreements
expire in July 1997 and July 1998, respectively.
Vehicle lender term notes: The vehicle lender term notes (the "notes") are
secured by the applicable vehicles and vehicle program receivables. Under
limited circumstances the notes may be repaid by draws under a related letter of
credit ($25,000).
Revolving credit facility: The revolving credit facility, which provides
funding of working capital, bears interest at rates that vary with commercial
paper rates and is due to Ford. The unused and available commitment of the
credit facility was $57,282 and $106,782 at December 31, 1995 and 1996,
respectively.
Foreign notes: The foreign notes primarily provide financing for vehicle
purchases and the funding of working capital. At December 31, 1995 and 1996,
approximately $53,917 and $67,733, respectively, relate to vehicle debt while
$4,976 and $3,943, respectively, relate to the funding of working capital and
various other debt. At December 31, 1995 and 1996, $2,991 and $2,120,
respectively, are due to Ford.
Notes payable to vendor: The note payable to vendor relates to the
Company's license agreement for the reservation system and associated
applications and databases.
Substantially all of the Company's assets serve as collateral under the
various credit agreements. Cash deposits restricted as to use amounted to
$52,471 and $28,359 at December 31, 1995 and 1996,
F-49
<PAGE> 135
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively. The fleet lender revolving notes, liquidity facility, vehicle
lender term notes and revolving credit facility each contain restrictive
covenants relating to, among other things, incurring liens, paying dividends or
selling certain assets. Additionally, the revolving credit facility has specific
covenants relating to net worth, leverage and capital expenditures. Compliance
with these covenants has been waived.
Maturities: Scheduled aggregate maturities of notes payable at December 31
are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
1996........................................................ $1,375,455 $ --
1997........................................................ 4,629 1,308,854
1998........................................................ 7,977 18,976
1999........................................................ 505,159 501,207
2000........................................................ 4,567 496
2001........................................................ 4,596 368
Thereafter.................................................. 15,564 485
---------- ----------
$1,917,947 $1,830,386
========== ==========
</TABLE>
Interest payments amounted to $105,214, ($63,038 to Ford) $149,219 ($83,627
to Ford) and $124,483 ($74,815 to Ford) in the years ended December 31, 1994,
1995 and 1996, respectively. In 1995 the Company capitalized $1,233 of interest
costs incurred.
(6) FINANCIAL INSTRUMENTS
Interest Rate Caps: The Company enters into interest rate cap agreements
to limit its exposure to increases in interest rates. Under these agreements,
the Company will receive payment in the event that 30 day commercial paper rates
exceed levels varying from 5.00% to 5.75%.
The Company had interest rate cap agreements outstanding in the notional
amount of $500,000 at December 31, 1995 and 1996, respectively. In 1996, fees of
approximately $3,600 have been paid to the counterparties (major banks) and are
amortized on the straight-line method to interest expense over the protection
period (through December 1997). At December 31, 1995 and 1996, the unamortized
fees amounted to approximately $3,390 and $3,600, respectively.
The Company is exposed to credit-related loss, to the extent of the fair
value of the contracts, in the event of nonperformance by the counterparties to
the agreements, but believes this risk to be minimal given the high credit
ratings of the counterparties.
Foreign exchange contracts: The Company employs forward foreign exchange
contracts to limit its exposure to currency fluctuations on certain intercompany
loans between foreign operations. Under these agreements, the Company is
obligated to sell foreign currencies (primarily European) in exchange for
British Sterling or U.S. dollars at dates several months into the future. These
contracts are subject to the creditworthiness of the counterparties (large
banks), but the Company believes this risk to be minimal given the high credit
ratings of the counterparties. At December 31, 1995, no foreign exchange
contracts were outstanding. At December 31, 1996, the Company had approximately
$7,254 in forward foreign exchange contracts outstanding and had deferred
expenses of approximately $77.
(7) PENSION AND OTHER BENEFIT PLANS
Substantially all employees of the United Kingdom and certain employees in
the U.S. are covered under noncontributory pension plans. Plan benefits are
based on final average compensation. The Company's funding policy for the
domestic pension plan is to contribute the minimum ERISA contribution
F-50
<PAGE> 136
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
required under the projected unit credit actuarial cost method. Effective
December 31, 1991, the Company suspended its domestic defined benefit pension
plan. As a result of this suspension, employees will earn no additional benefits
under the plan. The domestic plan is supplemented by an unfunded, nonqualified
plan providing benefits (as computed under the benefit formula) in excess of
limits imposed by Federal tax law. The cost of the supplemental plan was
approximately $1,009, $1,053 and $1,005 in 1994, 1995 and 1996, respectively.
Effective August 1996 the Company established an unfunded, nonqualified
plan providing benefits to its officers, (the Executive Protection Plan) based
on a percentage of final compensation. The cost of the Executive Protection Plan
was approximately $87 in 1996.
The Company also maintains a Savings Plus Plan. Under this plan, an
eligible employee of the Company, or its participating subsidiaries, who has
completed one year of continuous service and enrolls in the plan may elect to
defer from 1% to 15% of specified compensation under a "cash or deferred
arrangement" under Section 401(k) of the Internal Revenue Code, subject to
certain limitations. The Company contributes varying amounts (25% to 75%) on the
first 6% of each participating employee's eligible salary deferrals to various
funds established by the plan. The cost of the plan was approximately $2,436,
$2,657 and $2,332 in 1994, 1995 and 1996, respectively.
The Company maintains a defined contribution benefit plan covering all
employees eligible under the Savings Plus Plan. The amount of funds contributed
to the plan each year, if any, is at the discretion of the Board of Directors,
based on a percentage of an employee's total cash compensation. The cost of the
plan was approximately $5,368, $3,096 and $2,761 in 1994, 1995 and 1996,
respectively.
Each of the Company's defined benefit plan's accumulated benefits exceed
the plan's assets at December 31, 1996 and 1995. The following table sets forth
the domestic and foreign pension plans' funded status and amounts recognized in
the Company's consolidated financial statements at December 31:
<TABLE>
<CAPTION>
1995 1996
------------------ ------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
PLANS PLAN PLANS PLAN
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits......................... $(27,328) $(3,123) $(27,615) $(4,685)
Nonvested benefits...................... (1,033) (52) (1,103) (69)
-------- ------- -------- -------
Accumulated benefit obligation............ $(28,361) $(3,175) $(28,718) (4,754)
======== ======= ======== =======
Projected benefit obligation for service
rendered to date........................ (28,361) (3,920) (28,767) (5,768)
Plan assets at fair value, primarily
participation in common trust funds..... 14,650 6,185 16,183 7,936
-------- ------- -------- -------
Excess (deficiency) of plan assets over
projected benefit obligation............ (13,711) 2,265 (12,584) 2,168
Unrecognized net asset at transition...... -- (3) 1,217 (3)
Unrecognized net loss (gain).............. 15,110 (200) 12,458 398
Adjustment required to recognize minimum
liability............................... (15,110) -- (13,626) --
-------- ------- -------- -------
Prepaid (accrued) pension cost............ $(13,711) $ 2,062 $(12,535) 2,563
======== ======= ======== =======
</TABLE>
F-51
<PAGE> 137
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1994 1995 1996
------------------ ------------------ ------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN DOMESTIC FOREIGN
PLANS PLAN PLANS PLAN PLANS PLAN
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost for benefits
earned during the period..... $ -- $ 149 $ -- $ 158 $ 24 $ 447
Interest cost on projected
benefit obligation........... 1,639 224 1,809 253 1,916 344
Return on plan assets.......... 334 (520) (2,728) (526) (1,904) (666)
Net amortization and
deferral..................... (1,141) (43) 1,996 (3) 1,335 --
------- ----- ------- ----- ------- -----
Pension expense (income)....... $ 832 $(190) $ 1,077 $(118) $ 1,371 $ 125
======= ===== ======= ===== ======= =====
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation for 1995 and 1996 was 6.8% and
7.1%, respectively. No compensation increase has been assumed as no additional
benefits will be earned under the domestic plans. The assumed compensation
increase under the Executive Protection Plan and foreign plan was 5% and 4%,
respectively. The expected long-term rate of return on plan assets for 1995 and
1996 was 10% and 9.5%, respectively.
The Company has recognized additional liabilities related to each of its
domestic plans as the unfunded liability recognized as accrued pension cost is
less than the actuarially determined accumulated benefit obligation. The
additional liability is reflected in the accompanying balance sheets as follow
at December 31:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Unrecognized prior service cost (increase intangible
assets)................................................... $ -- $ 1,217
Additional liability in excess of unrecognized prior service
cost (decrease stockholders' equity)...................... 15,110 12,409
------- -------
Additional liability (increase accounts payable and accrued
expenses)................................................. $15,110 $13,626
======= =======
</TABLE>
(8) INCOME TAXES
The provision for income taxes for the years ended December 31 consists of
the following:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
State.................................................... $ 823 $ 448 $1,148
Foreign 1,676 866 1,852
------ ------ ------
2,499 1,314 3,000
Deferred................................................... 1,501 -- --
------ ------ ------
$4,000 $1,314 $3,000
====== ====== ======
</TABLE>
Net income tax payments amounted to $102, $1,640 and $2,196 in the years
ended December 31, 1994, 1995 and 1996, respectively.
F-52
<PAGE> 138
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliations of income taxes at the statutory U.S. Federal income tax
rate and the effective tax rate for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- -------
<S> <C> <C> <C>
Federal income tax provision at statutory rate......... $ 1,794 $(45,964) $ 164
Intangible amortization and adjustments................ 3,856 6,070 5,884
Provision for state taxes net of federal benefit....... 535 -- 746
Change in the beginning of the year valuation allowance
for deferred tax assets allocated to income tax
expense.............................................. (1,345) 44,383 (684)
Effect of foreign operations........................... (1,170) (2,625) (3,199)
Other.................................................. 330 (550) 89
------- -------- -------
$ 4,000 $ 1,314 $ 3,000
======= ======== =======
</TABLE>
Income (loss) before income tax expense from foreign sources was $5,216,
$7,049 and $8,436 for the years ended December 31, 1994, 1995 and 1996,
respectively.
The significant components of deferred income tax expense for the years
ended December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- -----
<S> <C> <C> <C>
Deferred tax expense (benefit) (arising from changes in
deferred tax assets and liabilities).................. $ 2,845 $(47,010) $ 684
Increase (decrease) in beginning-of-the-year balance of
the valuation allowance for deferred tax assets....... (1,344) 47,010 (684)
------- -------- -----
$ 1,501 $ -- $ --
======= ======== =====
</TABLE>
F-53
<PAGE> 139
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred liabilities at December 31
relate to the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Estimated self-insurance liability........................ $ 59,859 $ 54,060
Accrued expenses-pension.................................. (217) 800
Accounts receivable, principally due to allowance for
doubtful accounts...................................... 5,600 6,391
Accrued salaries and bonuses.............................. 4,225 2,103
Accrued expenses -- other................................. 881 (1,315)
Net operating loss carryforwards.......................... 87,952 76,672
Business tax credit carryforwards......................... 5,881 5,881
Alternative minimum tax credit carryforwards.............. 2,811 2,811
Foreign tax credit carryforwards.......................... 3,035 4,319
Foreign tax assets and net operating loss carryforwards... 245 1,308
Other..................................................... 479 479
--------- ---------
Total gross deferred tax assets........................ 170,751 153,509
Less valuation allowance............................... (112,697) (112,013)
--------- ---------
Net deferred tax assets................................ 58,054 41,496
Deferred tax liabilities:
Vehicles, principally due to differences in
depreciation........................................... (19,515) (2,986)
Other assets, principally due to research and
development............................................ (23,196) (22,714)
Intangibles, principally due to amortization of
identifiable items..................................... (12,483) (13,387)
Other..................................................... (2,860) (2,409)
--------- ---------
Total gross deferred tax liabilities...................... (58,054) (41,496)
--------- ---------
Net deferred tax asset...................................... $ -- $ --
========= =========
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of $207,222 which are available to offset future
federal taxable income through 2011. The Company's business tax credit
carryforwards for federal income tax purposes are available to reduce future
federal income taxes through 2011 and the Company's alternative minimum tax
credit carryforwards are available to reduce future federal regular income
taxes, if any, over an indefinite period. The foreign tax credits, available to
reduce future federal income taxes, if any, expire from 1997 through 2001.
During the year, as a result of the Recapitalization Plan, the Company
experienced a change of ownership for income tax purposes which may limit the
availability of the above carryover in future years.
Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of December 31, 1996 will be allocated as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Income tax benefit that would be reported in the
consolidated statements of operations..................... $ 95,764
Reduction of intangibles, including goodwill................ 16,249
--------
$112,013
========
</TABLE>
(9) LITIGATION
The Company was a defendant in a lawsuit (in which it filed counter claims)
that sought unspecified damages for alleged breach of contract related to its
interest in the INTRICO Partnership (a joint venture partnership, which was
created to develop a new state of the art hotel and vehicle rental reservation
system). In January 1994 the Company reached a settlement in this matter.
Amounts received in the settlement were sufficient to reimburse the Company for
its investment in the partnership, capitalized
F-54
<PAGE> 140
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expenditures and capitalized interest and had no other material impact on the
Company's consolidated financial condition.
Other litigation arising in the normal course of business is pending
against the Company. Management believes that the Company has meritorious
defenses to all significant litigation and that the ultimate outcome of the
litigation will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
(10) LEASES AND AIRPORT CONCESSION FEES
Expenses for operating leases and airport concession fees for the years
ended December 31 amount to:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Minimum fees........................................ $73,401 $66,439 $71,540
Contingent fees..................................... 24,855 32,113 28,340
------- ------- -------
$98,256 $98,552 $99,880
======= ======= =======
</TABLE>
Vehicle leasing expenses of $20,154, $20,937 and $24,713 for the years
ended December 31, 1994, 1995 and 1996, respectively, are not included in the
table above.
Contingent fees are largely based on a percentage of revenues at certain
locations. The Company is required by most of the leases for its operating
facilities to pay real estate taxes, insurance and other occupancy expenses. In
addition, the Company guarantees airport concession fees on behalf of certain
franchisees.
Future minimum commitments as of December 31, 1996 for noncancelable leases
and concession agreements are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
1997........................................................ $ 58,146
1998........................................................ 35,767
1999........................................................ 23,092
2000........................................................ 16,923
2001........................................................ 12,977
Thereafter.................................................. 61,640
--------
$208,545
========
</TABLE>
Several of the Company's leases include renewal options for varying
periods.
(11) MANDATORY REDEEMABLE PREFERRED STOCK
Series X preferred stock (Series X): The Series X is entitled to cumulative
dividends, payable quarterly, when and if declared by the Board of Directors, at
an annual rate of 7.5% of its stated value. The Series X is subject to mandatory
redemption in March 2004 at its then liquidation value (stated value plus any
unpaid accumulated dividends). The Series X ranks prior to all other equity
securities of the Company with respect to dividends rights and rights upon
liquidation.
The Series X stockholders may vote only with respect to matters which would
alter or change the powers, preferences or special rights of the shares
including authorization to issue any stock ranking equal or prior to the Series
X. A majority of Series X shares are required to approve any matters brought to
a vote.
F-55
<PAGE> 141
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Series A preferred stock (Series A): The Series A is entitled to cumulative
dividends, payable quarterly, when and if declared by the Board of Directors, at
an annual rate of 10% of its stated value. The Series A is subject to mandatory
redemption in March 2004 at its then liquidation value (stated value plus any
unpaid accumulated dividends). The Series A ranks prior to all other equity
securities of the Company other than Series X with respect to dividend rights
and rights upon liquidation.
The Series A stockholders may vote only with respect to matters which would
alter or change the powers, preferences or special rights of the shares
including authorization to issue any stock ranking equal or prior to the Series
A. A majority of Series A shares are required to approve any matters brought to
a vote. The affirmative vote of the original purchaser is required to approve
these matters as long as the original purchaser owns shares of Series A and
Series B preferred stock which collectively have an aggregate stated value of at
least $1,000.
(12) STOCKHOLDERS' EQUITY
Series B preferred stock (Series B): The Series B is entitled to cumulative
dividends, payable quarterly, when and if declared by the Board of Directors,
equal to 100% of earnings, after deduction of dividends on the Series A, up to a
maximum annual dividend of $25,000. The Series B ranks prior to the common stock
with respect to rights upon liquidation.
The Series B stockholders may vote only with respect to matters which would
alter or change the powers, preferences or special rights of the shares
including authorization to issue any stock ranking equal or prior to the Series
B. A majority of Series B shares is required to approve any matters brought to a
vote.
(13) ENVIRONMENTAL MATTERS
The Company has recorded amounts which, in management's best estimate, will
be sufficient to satisfy anticipated costs of known remediation requirements. At
December 31, 1996 the Company has accrued $3,400 for estimated environmental
remediation costs and expects to expend approximately $1,900 during 1997.
Amounts receivable from third parties for reimbursement of remediation
expenditures is not significant.
Due to factors such as continuing changes in environmental laws and
regulatory requirements, the availability and application of technology, the
identification of presently unknown remediation sites and changes in the extent
of expected remediation efforts, estimated costs for future environmental
compliance and remediation are subject to uncertainty and it is difficult to
predict the amount or timing of future remediation requirements. The Company
does not expect such future costs to have a material adverse effect on the
Company's consolidated financial position or results of operations.
(14) RELATED-PARTY TRANSACTIONS
Prior to the Recapitalization Plan, Ford Motor Company (Ford) and its
affiliates held all of the outstanding preferred stock of the Company and hold a
minimal amount of Series X at December 31, 1996. Ford and the Company are
parties to a vehicle supply agreement, effective through August 1998, pursuant
to which owned locations are to acquire at least 70% of their annual vehicle
purchases from Ford. The agreement provides that Ford vehicles will be
competitive with vehicles of other manufacturers in terms of price and other
factors. A related agreement between Ford and the Company, effective through
August 2007, provides for certain incentives to be paid by Ford to the Company
dependent on the attainment of certain volume purchase requirements. Ford
represents the Company's largest debtor and creditor at December 31, 1995 and
1996.
F-56
<PAGE> 142
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, receivables and accounts payable and accrued
expenses: The carrying amounts approximate fair value due to the short maturity
of these instruments.
Notes payable: The carrying amounts approximate fair value as a majority
of the obligations incur interest at a floating, market rate that is reset
monthly. In addition, the significant terms of fixed rate obligations do not
differ materially from those currently available to the Company.
Interest rate cap agreements: As described in note 6 to the consolidated
financial statements, the Company has recorded $3,600 in capitalized fees
related to various interest rate cap agreements. The fair value of these
agreements at December 31, 1996, based on a sampling of financial institutions'
and brokers' quotes is approximately $2,020.
(16) GEOGRAPHICAL SEGMENT INFORMATION
The Company operates in two major geographical areas; North America and
International.
Information by area for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
North America................................ $1,040,847 $1,064,182 $ 997,907
International................................ 114,919 129,288 134,914
---------- ---------- ----------
Total................................ $1,155,766 $1,193,470 $1,132,821
========== ========== ==========
Income Before Taxes:
North America................................ $ (3,209) $ (140,921) $ (10,882)
International................................ 8,334 9,595 11,351
---------- ---------- ----------
Total................................ $ 5,125 $ (131,326) $ 469
========== ========== ==========
Identifiable Assets:
North America................................ $2,440,040 $2,318,120 $2,142,798
International................................ 162,334 169,995 185,317
---------- ---------- ----------
Total................................ $2,602,374 $2,488,115 $2,328,115
========== ========== ==========
</TABLE>
(17) SUBSEQUENT EVENT -- SALE OF THE COMPANY
On January 13, 1997, Team Rental Group, Inc. and its subsidiaries (TEAM)
entered into stock purchase agreements (the Agreements) with Ford, the common
stockholder of the Company and the Company, pursuant to which TEAM agreed to
acquire the capital stock of the Company. Under the Agreements, all outstanding
fleet lender revolving notes and commercial paper payable will be refinanced. In
addition, the Company will be obligated to repay a portion of its outstanding
indebtedness under the revolving credit facility and Ford will cancel a portion
of the indebtedness.
F-57
<PAGE> 143
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Selling Stockholders have agreed to sell to each of the Underwriters named
below, and each of such Underwriters, for whom Goldman, Sachs & Co., Credit
Suisse First Boston Corporation, ABN AMRO Chicago Corporation, BT Alex. Brown
Incorporated, McDonald & Company Securities, Inc. and J.P. Morgan Securities
Inc. are acting as representatives (the "Representatives"), has severally agreed
to purchase from the Selling Stockholders, the respective number of shares of
Class A Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
CLASS A
COMMON
UNDERWRITER STOCK
----------- ---------
<S> <C>
Goldman, Sachs & Co. ....................................... 942,550
Credit Suisse First Boston Corporation...................... 942,550
ABN AMRO Chicago Corporation................................ 471,100
BT Alex. Brown Incorporated................................. 471,100
McDonald & Company Securities, Inc.......................... 471,100
J.P. Morgan Securities Inc.................................. 471,100
Dresdner Kleinwort Benson North America LLC. ............... 237,000
Furman Selz LLC............................................. 237,000
Montgomery Securities....................................... 237,000
Smith Barney Inc............................................ 237,000
---------
Total............................................. 4,717,500
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Class A Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $0.85 per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $0.10 per share to
certain brokers and dealers. After the shares of Class A Common Stock are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Representatives.
The Company and the Selling Stockholders have granted the Underwriters
options exercisable for 45 days after the date of this Prospectus to purchase up
to an aggregate of 600,000 additional shares of Class A Common Stock solely to
cover over-allotments, if any. The over-allotment option from Ford (for 100,000
shares of Class A Common Stock) must be exercised in full before the other
over-allotment options may be exercised and the over-allotment option from
Atlantic Equity Corporation (for 50,000 shares of Class A Common Stock) must be
exercised in full before the over-allotment option from the Company (for 450,000
shares of Class A Common Stock) may be exercised. If the Underwriters exercise
any of the over-allotment options, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them, as shown in
the foregoing table, bears to the 4,717,500 shares of Class A Common Stock
offered hereby.
The Company's directors and executive officers, who in the aggregate
beneficially own 2,933,758 shares of Class A Common Stock, and the Company have
agreed that, during the period beginning from the date of this Prospectus and
continuing to and including the date 90 days after the date of this Prospectus,
they will not offer, sell, contract to sell or otherwise dispose of any
securities of the Company (other than pursuant to employee stock option or
purchase plans existing or on the conversion or exchange of convertible or
exchangeable securities outstanding, on the date of this Prospectus) which are
substantially similar to the shares of Class A Common Stock or which are
convertible into or exchangeable for securities which are substantially similar
to the shares of Class A Common Stock without the prior written consent of
Goldman, Sachs & Co., except for the shares of Class A Common
U-1
<PAGE> 144
Stock offered hereby. In addition, during such 90 day period the Company may
issue up to 500,000 shares of Class A Common Stock in connection with
acquisitions. The recipients of such shares will be subject to restrictions on
disposition similar to those imposed by the Representatives on the Company and
its directors and executive officers.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act. See "Certain Transactions".
In connection with the Offering, the Underwriters may purchase and sell the
Class A Common Stock in the open market. These transactions may include
over-allotment and stabilization transactions and purchases to cover syndicate
short positions created in connection with the Offering. The Underwriters also
may impose a penalty bid, whereby selling concessions allowed to syndicate
members and other broker-dealers in respect of the Class A Common Stock sold in
the Offering for their account may be reclaimed by the syndicate if such
securities are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Class A Common Stock, which may be higher than the price
that might otherwise prevail in the open market; and these activities, if
commenced, may be discontinued at any time. These transactions may be effected
on the New York Stock Exchange, in the over-the-counter market or otherwise.
Credit Suisse First Boston Corporation and its affiliates have provided
extensive services to the Company in connection with certain of the Company's
debt facilities and public offerings. Credit Suisse First Boston Corporation
also acted as financial advisor to the Company in connection with the Budget
Acquisition.
U-2
<PAGE> 145
==========================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 12
Use of Proceeds.......................... 17
Price Range of Common Stock.............. 17
Dividend Policy.......................... 17
Capitalization........................... 18
Pro Forma Consolidated Statements of
Operations............................. 20
Selected Historical Financial Data of
the Company............................ 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of the Company.............. 31
Selected Historical Financial Data
of BRACC............................... 40
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of BRACC.................... 42
Business................................. 47
The Budget Acquisition................... 61
Management............................... 64
Certain Transactions..................... 69
Principal and Selling Stockholders....... 72
Description of Capital Stock............. 75
Description of Certain Indebtedness...... 80
Shares Eligible for Future Sale.......... 83
Legal Matters............................ 83
Experts.................................. 83
Additional Information................... 85
Index to Financial Statements............ F-1
Underwriting............................. U-1
</TABLE>
==========================================================
==========================================================
4,717,500 SHARES
BUDGET GROUP, INC.
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
[BUDGET LOGO]
------------------------
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
ABN AMRO CHICAGO CORPORATION
BT ALEX. BROWN
MCDONALD & COMPANY
SECURITIES, INC.
J.P. MORGAN & CO.
REPRESENTATIVES OF THE UNDERWRITERS
==========================================================
