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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
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Commission File No.: 0-23962
BUDGET GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-3227576
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
125 Basin Street, Suite 210, Daytona Beach,FL 32114
(Address of principal executive offices)
(904) 238-7035
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
19,960,683 shares of common stock were outstanding as of August 13, 1997,
comprised of 18,024,083 shares of the registrant's Class A common stock, par
value $0.01, and 1,936,600 shares of the registrant's Class B common stock, par
value $0.01.
The Exhibit Index, filed as a part of this report, appears on page 13.
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INDEX
<TABLE>
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997 (unaudited)
and December 31, 1996 3
Consolidated Statements of Operations for the Three and Six-Month
Periods Ended June 30, 1997 and 1996 (unaudited) 4
Consolidated Statement of Changes in Stockholders' Equity
for the Six-Month Period Ended June 30, 1997 (unaudited) 5
Consolidated Statements of Cash Flows for the Six-Month
Periods Ended June 30, 1997 and 1996 (unaudited) 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II. Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Default Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
</TABLE>
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BUDGET GROUP, INC.
CONSOLIDATED BALANCE SHEETS
Team Operations
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
(UNAUDITED)
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<S> <C> <C>
Cash and cash equivalents $ 181,338 $ 50,490
Restricted cash 153,706 66,336
Trade and vehicle receivables, net 233,782 31,302
Accounts receivable, related parties 58 58
Prepaids, inventories and deposits 81,462 13,972
Vehicle inventory 29,618 16,413
Revenue earning vehicles, net 2,340,807 319,257
Property and equipment, net 135,363 18,502
Other assets 48,398 --
Intangibles, including goodwill, net 395,443 70,893
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Total assets $ 3,599,975 $ 587,223
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 463,400 $ 31,127
Capital lease obligations 496 580
Deferred income taxes 3,369 7,406
Notes payable 2,756,084 454,109
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Total liabilities 3,223,349 493,222
Common stock warrant -- 2,000
STOCKHOLDERS' EQUITY
Convertible preferred stock 105,750 --
Common stock 199 112
Additional paid-in-capital 265,185 89,856
Foreign currency translation adjustment (42) --
Retained earnings 5,864 2,363
Treasury stock (330) (330)
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Total stockholders' equity 376,626 92,001
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Total liabilities and stockholders' equity $ 3,599,975 $ 587,223
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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BUDGET GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollar amounts in thousands except per share data)
<TABLE>
<CAPTION>
FOR THE THREE-MONTH PERIODS ENDED JUNE 30, FOR THE SIX-MONTH PERIODS ENDED JUNE 30,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
OPERATING REVENUE:
Rental revenue $ 235,862 $ 59,145 $ 294,559 $ 103,842
Car sales revenue 57,841 34,589 101,592 55,686
Royalties and other revenue 12,618 -- 12,618 0
------------ ------------ ------------ ------------
Total operating revenue 306,321 93,734 408,769 159,528
OPERATING EXPENSES:
Direct vehicle and operating 29,542 6,783 38,402 12,742
Depreciation - vehicles 67,814 16,219 85,217 28,023
Depreciation - nonvehicle 4,690 674 5,361 1,210
Cost of car sales 49,493 29,455 86,068 47,295
Advertising, promotion and selling 28,527 6,009 35,050 10,609
Facilities 24,391 5,089 30,326 9,417
Personnel 56,603 13,316 71,403 24,005
General and administrative 13,732 4,865 16,707 7,135
Amortization 2,429 482 2,975 996
------------ ------------ ------------ ------------
Total operating expenses 277,221 82,892 371,509 141,432
------------ ------------ ------------ ------------
Operating income 29,100 10,842 37,260 18,096
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Other (income) expense:
Vehicle interest 21,070 6,342 27,794 11,963
Other interest, net 4,544 795 5,290 931
Interest income - restricted cash (1,089) (38) (1,812) (787)
Related party interest -- -- -- 118
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Total other (income) expense 24,525 7,099 31,272 12,225
INCOME BEFORE INCOME TAXES 4,575 3,743 5,988 5,871
Provision for income taxes 1,922 1,497 2,487 2,348
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NET INCOME $ 2,653 $ 2,246 $ 3,501 $ 3,523
============ ============ ============ ============
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARES:
PRIMARY $ 0.13 $ 0.30 $ 0.21 $ 0.48
============ ============ ============ ============
FULLY DILUTED $ 0.13 $ 0.30 $ 0.21 $ 0.47
============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
PRIMARY 20,832,000 7,569,000 16,313,000 7,413,000
============ ============ ============ ============
FULLY DILUTED 20,978,000 7,584,000 16,391,000 7,497,000
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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BUDGET GROUP, INC.
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'
(Dollar amounts in thousands) Stock Stock Capital Adjustment Earnings Stock Equity
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<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
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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
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BUDGET GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollar amounts in thousands) FOR THE SIX-MONTH PERIODS ENDED JUNE 30,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,501 $ 3,523
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 90,538 29,233
Intangible Amortization 2,975 1,133
(Gain)/Loss on sale of vehicles and equipment (1,640) -
Deferred income taxes 2,963 (268)
Provision for losses on accounts receivable 716 -
Changes in operating assets and liabilities
net of effects from acquisitions:
Accounts receivable (9,638) (3,321)
Prepaids, inventories and deposits (14,420) (2,507)
Vehicle inventory (1,965) (6,952)
Accounts payable and accrued expenses 24,987 5,777
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Total adjustments 94,516 23,095
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Net cash provided by operating activities 98,017 26,618
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash 84,690 64,853
Proceeds from sale of revenue earning vehicles 495,770 119,348
Purchases of revenue earning vehicles (1,000,330) (263,809)
Purchase of BRACC and franchise operations,
net of cash acquired (143,164) (11,496)
Proceeds from the sale of property and equipment 3,274 -
Purchases of property and equipment (7,016) (8,924)
Investment in joint ventures and other 1,150 -
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Net cash used in investing activities (565,626) (100.028)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit/notes payable
to banks and other notes payable 171,209 26,074
Principal payments on revolving credit/notes
payable to banks and other notes payable (173,836) (500)
Proceeds from fleet lender notes 685,657 108,893
Principal payments on fleet lender notes (462,447) (50,362)
Proceeds from commercial paper 2,272,676 -
Principal payments on commercial paper (1,982,764) -
Proceeds from inssuance of common stock 175,416 -
Principal payments on capital leases (84) (82)
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Net cash provided by financing activities 685,827 84,023
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Net increase in cash and cash equivalents 218,218 10,613
Cash and cash equivalents, beginning of period 116,826 357
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Cash and cash equivalents, end of period $ 335,044 $ 10,970
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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BUDGET GROUP, INC.
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 three and
six-month periods 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 consolidated financial statements for the three and six-month period 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.
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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 PERIOD ENDED JUNE 30, 1997 1996
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<S> <C> <C>
(In thousands except per share data)
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 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 surrounding January 13) 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
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.
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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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's original operation, acquired in April 1987, was the Budget
franchise for the San Diego metropolitan area, exclusive of the airport
location, which it acquired in 1988. The Company acquired the Albany and
Rochester, New York franchises and the Richmond, Virginia franchise in 1991.
Concurrent with the Company's initial public offering on August 25, 1994, the
Company purchased the Budget operations in Philadelphia and Pittsburgh,
Pennsylvania and Cincinnati, Ohio. In November 1994, the Company acquired the
Fort Wayne, Indiana Budget franchise and opened its first retail car sales
facility in San Diego, California. The Company acquired the Dayton, Ohio and
Charlotte, North Carolina Budget franchises in January 1995, the Hartford,
Connecticut Budget franchise in March 1995 and the Los Angeles Budget franchise
in October 1995. During 1995, the Company opened four retail car sales
facilities, including locations in Philadelphia, Pennsylvania; Richmond,
Virginia; Charlotte, North Carolina; and a second location in San Diego,
California; and acquired retail car sales facilities in Dayton, Ohio and
Ontario, California. In February 1996, the Company acquired the Phoenix, Arizona
Budget franchise territory and VPSI, Inc., a commuter van pooling service with
operations in many regions throughout the United States. In April 1996, the
Company opened two retail car sales facilities, including its first facility in
Cincinnati, Ohio and its second facility in Dayton, Ohio. In August 1996, the
Company acquired ValCar Rental Car Sales, Inc., the operator of four retail
vehicle sales facilities in Indianapolis, Indiana.
In April 1997, the Company acquired Budget Rent a Car Corporation and changed
its name to Budget Group, Inc. For a further discussion of this transaction, see
Note 1 to the Company's financial statements herein.
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 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-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 $2.430 billion borrowed under asset-backed
notes, which are utilized largely to finance vehicles eligible for certain
manufacturers' guaranteed repurchase programs. Proceeds from the 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 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 million for rental
vehicles and $26 million for retail car sales inventory with maturity dates
ranging from April 1997 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 vehicle obligations will generally be repaid within
one year from the balance sheet date with proceeds received from either the
repurchase of the vehicles by the manufacturers in accordance with the terms of
the manufacturers' rental fleet programs or from the sale of the vehicles.
Monthly payments of interest only for 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
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is sold but in no event later than 120 days after the date of purchase.
Working Capital Facilities. At June 30, 1997, the Company had a working capital
facility of $300.0 million, which requires monthly interest payments on the
outstanding balance at a rate based on LIBOR plus 1.75%. This agreement expires
in 2002, is secured primarily by cash, accounts receivable and unencumbered
vehicles and is subject to certain covenants, the most restrictive of which
requires the Company to maintain certain financial ratios and minimum tangible
net worth and restricts the payment of cash dividends. At June 30, 1997, the
Company had $256.1 million in letters of credit outstanding under this facility.
Senior Notes Payable. At June 30, 1997, the Company had $165.0 million of
outstanding senior notes payable. The notes bear interest at rate of 9.57% and
mature in 2007.
Convertible Subordinated Notes. At June 30, 1997, the Company had $125.0 million
aggregate principal amount of Series A Convertible Notes outstanding. At a
conversion price of $20.07 per share, $80.0 million of the Series A Convertible
Notes are convertible into 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, $45.0 million of the Series A 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.
CHANGE IN FINANCIAL CONDITION
Total assets increased $3.013 billion from $587.2 million at December 31, 1996
to $3.600 billion at June 30, 1997. This increase resulted primarily from
increases in revenue-earning vehicles of $2.022 billion and intangibles of
$324.6 million. These increases were largely a result of the acquisition of
BRACC. Total liabilities increased $2.730 billion from $493.2 million at
December 31, 1996 to $3.223 billion at June 30, 1997 due primarily to an
additional $2.302 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 common stock offering and issuance of convertible preferred stock in
April 1997 in conjunction with the acquisition of BRACC.
RESULTS OF OPERATIONS
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 to $.21 per share from $.48
per share in 1996 due to the increase in average shares outstanding as a result
of the stock offerings (4.6 million shares in July 1996 and 8.6 million shares
in April 1997) and convertible preferred stock issued in connection with the
acquisition of BRACC (convertible into 4.5 million shares). Income before
income taxes increased $.1 million for the first six months of 1997 to $6.0
million from $5.9 million for the first six months of 1996. Net income for the
second quarter of 1997 increased $.4 million to $2.6 million from $2.2 million
in the second quarter of 1996. Earnings per share for the second quarter of
1997 decreased to $.13 per share from $.30 per share in 1996 due to the
increase in average shares outstanding as previously mentioned. Income before
income taxes increased $.8 million in the second quarter of 1997 to $4.6
million from $3.8 million in the second quarter of 1996.
Operating Revenues. Vehicle rental revenue increased $190.7 million in the first
six months of 1997 to $294.6 million from $103.8 million in the first six months
of 1996. Such revenues for the second quarter of 1997 increased $176.7 million
to $235.9 million from $59.2 million in 1996. These increases were due to the
acquisition of BRACC which added a significant number of locations and vehicles
to the Company's operations. Revenue from the sales of vehicles increased $45.9
million in the first six months of 1997 to $101.6 million from $55.7 million in
the first six months of 1996. Such revenues for the second quarter of 1997
increased $23.2 million to $57.8 million from $34.6 million in 1996. These
increases were 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 six month and second quarter periods in 1997 and largely
represent royalty and other fees due from the Company's franchisees.
Operating Expenses. Total operating expenses increased $230.1 million in the
first six months of 1997 to $371.5 million from $141.4 million in the first six
months of 1996. Such expenses for the second quarter
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of 1997 increased $194.3 million to $277.2 million from $82.9 million in 1996.
These increases were also due to the addition of BRACC's operations to the
Company's operations. The cost of vehicles sold increased $38.8 million in the
first six months of 1997 to $86.1 million from $47.3 million in 1996. Such
expenses for the second quarter of 1997 increased $20.0 million to $49.5 million
from $29.5 million in 1996. These increases are reflective of the car sales
revenue growth with the addition of BRACC car sales locations and new locations
opened by the Company. Amortization expense increased $2.0 million in the first
six months of 1997 to $3.0 million from $1.0 million in the first six months of
1996. Such expenses for the second quarter of 1997 increased $1.9 million to
$2.4 million from $.5 million in 1996. These increases were largely due to
intangibles, including goodwill, related to the acquisition of BRACC.
Other (Income) Expense, net. Interest expense, net of interest income, increased
$19.2 million in the first six months of 1997 to $31.3 million from $12.2
million in the first six months of 1996. Such expenses for the second quarter of
1997 increased $17.4 million to $24.5 million from $7.1 million in 1996. These
increases were due to the financing of fleet and other borrowings related to the
acquisition of BRACC net of investment income due to the increase in cash .
Provision for income taxes. The provision for income taxes increased $.1 million
in the first six months of 1997 to $2.5 million from $2.4 million for the first
six months of 1996. The provision for the second quarter of 1997 increased $.4
million to $1.9 million from $1.5 million in 1996. The tax provision reflects
the expected full year effective rate of 42% which is higher than the statutory
rate due to the effects of non-deductible intangible amortization and the impact
of state and local income taxes net of the federal benefit.
RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 simplifies the standards for computing earnings per share and is effective
for all financial statements issued for periods ending after December 15, 1997.
Earlier application is not permitted. The adoption of SFAS 128 is not expected
to materially impact the Company's earnings per share.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not applicable.
ITEM 2 CHANGES IN SECURITIES
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 acquisition of
BRACC 4,500 shares of Series A Convertible Preferrred Stock were issued to
Ford.
The Series A Convertible Preferred Stock ranks, with respect to
dividend rights and rights on liquidation, senior to the outstanding Class A
and Class B common stock (the "Common Stock").
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. Each share of Series A
Convertible Preferred Stock is also entitled to receive cumulative cash
dividends in respect of each share of Series A Convertible Preferred Stock in
such amount as the holder thereof would receive if such share were converted
into a share of Class A Common Stock immediately prior to the record date for
payment of any cash dividend on the Class A Common Stock. 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.
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.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on April 22, 1997 in
Daytona Beach, Florida for the purpose of (i) electing nine directors to the
Board of Directors; (ii) approving certain amendments to the Company's Amended
and Restated Certificate of Incorporation; (iii) approving certain amendments
to the Company's 1994 Incentive Stock Option Plan; and (iv) approving certain
amendments to the Company's 1994 Directors' Stock Option Plan. Proxies for the
meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act
of 1934 and there was no solicitation in opposition to management's
solicitations.
All of management's nominees for directors as listed in the proxy
statement were elected with the following vote:
<TABLE>
<CAPTION>
Director Nominee Votes For Votes Withheld
---------------- --------- --------------
<S> <C> <C>
Sanford Miler 27,526,215 100
John P. Kennedy 27,526,215 100
Jeffrey D. Congdon 27,526,215 100
Ronald D. Agronin 27,526,215 100
James F. Calvano 27,526,215 100
Martin P. Gregor 27,526,215 100
Alan D. Liker 27,526,215 100
Jeffrey R. Mirkin 27,526,215 100
Dr. Stephen L. Weber 27,526,215 100
</TABLE>
Amendments to the Company's Amended and Restated Certificate of
Incorporation (i) to increase the authorized number of shares of Class A Common
Stock from 17,500,000 to 35,000,000 and (ii) to change the name of the Company
to Budget Group, Inc. were approved with the following vote:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Votes For Votes Against Votes Withheld
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Class B Class A Class B Class A Class B
Common Common Common Common Common Common
Stock Stock Stock Stock Stock Stock
=========================================================================================
8,142,564 19,366,000 16,863 0 888 0
- -----------------------------------------------------------------------------------------
</TABLE>
Amendments to the Company's 1997 Incentive Stock Option Plan (i) to
increase by 990,000 the number of shares of Common Stock available for grant
under such plan such that the total number of shares of Common Stock available
for grant under such plan is 1,750,000 and (ii) to approve certain other
amendments to such plan were approved with the following vote:
<TABLE>
<CAPTION>
Votes For Votes Against Votes Withheld
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Class B Class A Class B Class A Class B
Common Common Common Common Common Common
Stock Stock Stock Stock Stock Stock
=========================================================================================
7,158,655 19,366,000 996,652 0 5,008 0
- -----------------------------------------------------------------------------------------
</TABLE>
Amendments to the Company's 1994 Directors' Stock Option Plan (i) to
increase by 125,000 the number of shares of Common Stock available for grant
under such plan such that the total number of shares of Common Stock available
for grant under such plan is 150,000 and (ii) to approve certain other
amendments to such plan were approved with the following vote:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Votes For Votes Against Votes Withheld
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Class B Class A Class B Class A Class B
Common Common Common Common Common Common
Stock Stock Stock Stock Stock Stock
===============================================================================
7,416,882 19,366,000 743,062 0 371 0
- -------------------------------------------------------------------------------
</TABLE>
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 11 Earnings Per Share
Exhibit 27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
In a Form 8-K dated April 29, 1997 and filed on May 14, 1997, the Company filed
under Item 2 and Item 7, the information, financial statements and pro forma
financial information related to the acquisition of Budget Rent a Car
Corporation.
13
<PAGE> 14
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BUDGET GROUP, INC.
------------------
(Registrant)
Dated: August 14, 1997 By: /s/ Sanford Miller
------------------
Sanford Miller
Chairman of the Board and
Chief Executive Officer
Dated: August 14, 1997 By: /s/ Jeffrey D. Congdon
----------------------
Jeffrey D. Congdon
Chief Financial Officer
14
<PAGE> 1
EXHIBIT 11.1
EARNINGS PER SHARE COMPUTATIONS
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
June 30, June 30,
1997 1996
------- -------
PRIMARY EARNINGS PER SHARE: (Dollar and share amounts in 000's)
<S> <C> <C>
Net Income $ 3,501 $ 3,523
------- -------
Shares:
Weighted average common shares outstanding 14,218 7,343
Effect of shares issuable under stock option
plans, stock purchase warrants and convertible
securities based on the treasury stock method 2,095 70
------- -------
Adjusted common shares and equivalents 16,313 7,413
======= =======
Earnings per share - primary $ 0.21 $ 0.48
======= =======
FULLY DILUTED EARNINGS PER SHARE:
Net Income $ 3,501 $ 3,523
------- -------
Shares:
Weighted average common shares outstanding 14,218 7,343
Effect of shares issuable under stock option
plans, stock purchase warrants and convertible
securities based on the treasury stock method 2,173 154
------- -------
Adjusted common shares and equivalents 16,391 7,497
======= =======
Earnings per share - fully diluted $ 0.21 $ 0.47
======= =======
</TABLE>
<PAGE> 2
EXHIBIT 11.1
EARNINGS PER SHARE COMPUTATIONS
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
June 30, June 30,
1997 1996
------- -------
PRIMARY EARNINGS PER SHARE: (Dollar and share amounts in 000's)
<S> <C> <C>
Net Income $ 2,653 $ 2,246
------- -------
Shares:
Weighted average common shares outstanding 17,147 7,430
Effect of shares issuable under stock option
plans, stock purchase warrants and convertible
securities based on the treasury stock method 3,685 139
======= =======
Adjusted common shares and equivalents 20,832 7,569
======= =======
Earnings per share - primary $ 0.13 $ 0.30
======= =======
FULLY DILUTED EARNINGS PER SHARE:
Net Income $ 2,653 $ 2,246
------- -------
Shares:
Weighted average common shares outstanding 17,147 7,430
Effect of shares issuable under stock option
plans, stock purchase warrants and convertible
securities based on the treasury stock method 3,831 154
------- -------
Adjusted common shares and equivalents 20,978 7,584
======= =======
Earnings per share - fully diluted $ 0.13 $ 0.30
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 335,044
<SECURITIES> 0
<RECEIVABLES> 233,840
<ALLOWANCES> 0<F1>
<INVENTORY> 2,370,425
<CURRENT-ASSETS> 2,939,309
<PP&E> 135,363
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 3,599,975
<CURRENT-LIABILITIES> 467,265
<BONDS> 2,756,084
0
105,750
<COMMON> 199
<OTHER-SE> 270,677
<TOTAL-LIABILITY-AND-EQUITY> 3,599,975
<SALES> 408,769
<TOTAL-REVENUES> 408,769
<CGS> 86,068
<TOTAL-COSTS> 285,441
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,272
<INCOME-PRETAX> 5,988
<INCOME-TAX> 2,487
<INCOME-CONTINUING> 3,501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,501
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
<FN>
<F1>RECEIVABLES ARE REPORTED NET OF ALLOWANCES FOR DOUBTFUL ACCOUNTS ON THE
BALANCE SHEET
<F2>PROPERTY, PLANT & EQUIPMENT IS REPORTED NET OF ACCUMULATED DEPRECIATION ON
THE BALANCE SHEET
</FN>
</TABLE>
