<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): July 2, 1998
BUDGET GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-78274 59-3227576
(State or Other Jurisdiction (Commission File No.) (I.R.S. Employer
of Incorporation) Identification No.)
125 Basin Street, Suite 210
Daytona Beach, Florida 32114
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (904) 238-7035
N/A
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(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
Item 5. Other Events
The following consolidated financial statements of Budget Group, Inc.
reflecting the pooled operations of Budget Group, Inc. and subsidiaries and
Cruise America, Inc., which was acquired by Budget Group, Inc. on January 28,
1998, and related Management's Discussion and Analysis of Financial Condition
and Results of Operations for the years ended December 31, 1995, 1996 and 1997,
are filed as part of this Report:
Report of Independent Certified Public Accountants
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1996 and 1997
Consolidated Statements of Income for Each of the Three
Years in the Period Ended December 31, 1997
Consolidated Statements of Stockholders' Equity for Each
of the Three Years in the Period Ended December 31, 1997
Consolidated Statements of Cash Flows for Each of the
Three Years in the Period Ended December 31, 1997
Notes to Consolidated Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Prior to the Budget Acquisition, TEAM 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, the Company 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.
The Company's retail car sales business has grown significantly since the
opening of the Company's first retail car sales facility in November 1994. The
Company added six retail car sales facilities during 1995, with the retail car
sales business producing $42.7 million of revenue for 1995 (representing 17.8%
of the Company's total historical revenue for the year), and added four
facilities during 1996. The retail car sales business produced $134.1 million of
revenue in 1996 (representing 29.9% of the Company's total historical revenue
for the year). The Company's retail car sales business produced $1.3 million of
operating income in 1995 (representing 5.6% of the Company's total operating
income) and $1.9 million of operating income in 1996 (representing 4.0% of the
Company's total operating income). The Company added 15 retail car sales
facilities during 1997, for a total of 26 retail car sales facilities operated
by the Company at December 31, 1997. In 1997, the Company's retail car sales
business had revenue of $240.0 million (representing 17.0% of the Company's
total historical revenue for the year) and an operating loss of $2.4 million
reflecting significant costs to upgrade BRACC locations and to open several new
locations. At December 31, 1996 and 1997, the retail car sales business
represented 7.0% and 2.7% of the Company's total identifiable assets,
respectively. The remaining retail vehicle sales revenues, operating income and
identifiable assets of the Retail Vehicle Sales segment relate to recreational
vehicle activity of Cruise America, Inc. ("Cruise"). See Note 16 of the Notes to
the Consolidated Financial Statements of the Company.
The 1995 results of operations reported herein include the consolidated
operations of the entities comprising the Company at December 31, 1994 and the
acquired operations of the Dayton, Ohio, Charlotte, North Carolina, Hartford,
Connecticut, and Los Angeles, California Budget franchises from their respective
acquisition dates through December 31, 1995. The 1996 results of operations
reported herein include the acquired operations of the Phoenix Budget franchise,
Van Pool Services and ValCar Rental Car Sales, Inc. ("ValCar") from their
respective acquisition dates. The results of operations reported herein also
include the operations of Cruise America, Inc., acquired on January 28, 1998 and
accounted for as a pooling of interests, as if the companies had combined at the
first period presented.
On April 29, 1997, the Company 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 were converted into 4,500,000 shares of Class A Common Stock and
sold in a public offering on October 1, 1997. The results of operations of the
Company for 1997 include the operations of BRACC from April 29, 1997. The 1997
results of operations reported herein also include the acquired operations of
Premier Car Rental from July 31, 1997 and the Budget franchise in St. Louis,
from September 30, 1997.
<PAGE> 3
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, the percentage
of operating revenues represented by certain items in the Company's consolidated
statements of operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Vehicle rental revenue 63.4% 61.7% 75.8%
Retail car sales revenue 36.0 37.8 20.5
Royalties and other revenue .6 .5 3.7
------- ------- -------
Total operating revenue 100.0 100.0 100.0
------- ------- -------
Direct vehicle and operating expenses 9.6 10.8 10.1
Cost of car sales 32.1 32.7 17.8
Vehicle depreciation expense 15.9 16.0 20.7
Non-vehicle depreciation expense 1.0 0.8 1.1
Advertising, promotion and selling 5.7 5.6 6.8
Facilities 5.2 4.8 6.9
Personnel 14.5 14.3 18.4
General and administrative expenses 5.9 4.0 5.5
Amortization of franchise rights 0.4 0.4 0.6
------- ------- -------
Operating income 9.7 10.6 12.1
------- ------- -------
Vehicle interest expense 8.6 7.2 7.2
Non-vehicle interest expense (income), net (.2) 0.2 1.0
Nonrecurring expense -- 0.3 --
------- ------- -------
Income before income taxes 1.3 2.9 3.9
Provision for income taxes 0.6 1.1 1.8
------- ------- -------
Net income 0.7% 1.7% 2.1%
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
General Operating Results. Net income for 1997 increased $22.0 million to
$29.8 million from $7.8 million in 1996. Diluted earnings per share for 1997
increased to $1.25 per share from $.70 per share in 1996. Income before income
taxes increased $42.7 million for 1997 to $55.6 million from $12.9 million for
1996.
Operating Revenues. Vehicle rental revenue increased $794.1 million in
1997 to $1,070.4 million from $276.3 million in 1996. This increase was due
primarily to the Budget Acquisition which added over 370 locations and over
67,000 vehicles to the Company's operations in the U.S. Revenue from the sales
of vehicles increased $119.8 million in 1997 to $289.1 million from $169.3
million in 1996. This increase was due primarily to the addition of 11 car sales
operations of BRACC as well as 4 new stores opened by the Company. Royalties and
other revenues totaled $51.9 million in 1997 and largely represent royalty and
other fees due from the Company's franchisees.
Operating Expenses. Total operating expenses increased $840.2 million in
1997 to $1,240.4 million from $400.2 million in 1996. This increase was largely
due to the addition of BRACC's operations to the Company's operations. The cost
of vehicles sold increased $104.6 million in 1997 to $251.1 million from $146.5
million in 1996. This increase is reflective of the car sales revenue growth
with the addition of BRACC car sales locations and new locations opened by the
Company. General and administrative expenses in 1997 includes a $10.0 million
one-time charge to establish an accrual for damages. See Note 13 of the Notes to
the Consolidated Financial Statements of the Company. Amortization expense
increased $6.7 million in 1997 to $8.5 million from $1.8 million in 1996. This
increase was largely due to intangibles, including goodwill, related to the
Budget Acquisition. Changes from 1996 to 1997 in the percent of revenue for
expense categories are largely attributable to the increase in vehicle rental
operations in relation to vehicle sales operations resulting from the Budget
Acquisition.
<PAGE> 4
Other (Income) Expense. Interest expense, net of interest income,
increased $80.6 million in 1997 to $115.4 million from $34.7 million in 1996.
This increase was due to the financing of fleet and other borrowings related to
the Budget Acquisition, net of investment income due to the increase in cash.
Provision for Income Taxes. The provision for income taxes increased $20.7
million in 1997 to $25.8 million from $5.1 million for 1996. The tax provision
reflects a full year effective rate of 46% which is higher than the statutory
rate largely due to the effects of non-deductible intangible amortization and
the impact 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 $6.0 million, or
352.7%, to $7.8 million from $1.7 million for 1995. Income before provision for
income taxes increased 304.3% from $3.2 million in 1995 to $12.9 million for
1996. This increase was due to the Company's acquisition activity and the growth
of the Company's car sales operations from seven locations at December 31, 1995
to 11 locations at December 31, 1996. Operating income for 1996 increased $24.4
million, or 105.1%, from $23.2 million for 1995 to $47.6 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 Services.
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 $124.6
million, or 82.1%, from $151.7 million in 1995 to $276.3 million in 1996. The
increase in rental revenues was due primarily to the increase in the size of the
Company 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 Services in February 1996. Revenues
from the sale of vehicles increased $83.1 million from $86.2 million in 1995 to
$169.3 million in 1996 due to the expansion of the Company's car sales
facilities from seven locations at December 31, 1995 to 11 locations at December
31; 1996.
Operating Expenses. Operating expenses increased approximately $183.9
million, or 85.0%, to $400.2 million for 1996 as compared to $216.3 million for
1995. The growth of the Company's vehicle rental operations through the
acquisitions discussed above was the principal cause of all the increases in the
Company's operating expenses. Vehicle depreciation increased approximately $33.7
million, or 88.4%, in 1996 due to an increase in fleet of 7,800 vehicles.
Advertising expenses increased from $13.7 million in 1995 to $25.2 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 $9.0 million, or 72.4%, in 1996 as compared to 1995 due to the
addition of 19 1ocations since December 31, 1995. Personnel costs increased
approximately 83.9% in 1996 as compared to 1995 due to an increase of
approximately 800 employees since December 31, 1995. Other operating expenses
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 $20.0 million for 1995 to $34.7 million for 1996. Vehicle
interest expense increased approximately $11.9 million in 1996 due to the
increase in the size of the Company'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 increased $1.0 million to $1.7
million in 1996 from $.7 million in 1995. 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 $3.6
million from $1.5 million for 1995 to $5.1 million for 1996. The tax provision
is calculated at a rate of approximately 39.7%. The increase in provision is due
to the enhanced profitability of the Company in 1996 as compared to 1995.
<PAGE> 5
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.
The Company's existing indebtedness at December 31, 1997 has interest rates
ranging from 5.8% to 10.5%. 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 December 31, 1997, the Company had borrowed $2.2 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 December 31, 1997 range from 5.8% to 7.8%.
The Company's other vehicle obligations consist of outstanding lines of
credit to purchase rental fleet retail car sales inventory. Collateralized
available lines of credit at December 31, 1997 consist of $89.2 million for
rental vehicles and $27.0 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 7.0% to 10.5% at December 31, 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 sales of the vehicles.
Net cash provided by operating activities for the twelve months ended
December 31, 1997 increased 205.3% to $235.6 million from $77.2 million for the
twelve months ended December 31, 1996. Net cash provided by operating activities
for 1996 increased 147.3% to $77.2 million from $31.2 million in 1995. 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 twelve months ended December
31, 1997 increased 621.9% to $664.6 million from $92.1 million for the. twelve
months ended December 31, 1996. Net cash used in investing activities is
primarily attributed to cash paid to suppliers of revenue earning 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 $1,747.3 million, $484.1 million and $317.7 million for 1997, 1996
and 1995, respectively. Cash paid to suppliers of revenue earning vehicles was
$2,063.6 million, $569.1 million and $362.0 million for 1997, 1996 and 1995,
respectively. The increase in cash paid to suppliers of revenue earning vehicles
during 1997 was a result of the increased number of locations due to the Budget
Acquisition. The increase in cash paid to suppliers of revenue earning vehicles
during 1996 was a result of the increased number of operating locations
throughout 1996. Payment for acquisitions, net of cash acquired, amounted to
$143.2 million, $5.1 million and $6.5 million for 1997, 1996 and 1995,
respectively.
Net cash provided by financing activities for the twelve months ended
December 31, 1997 increased 711.5% to $536.8 million from $66.2 million for the
twelve months ended December 31, 1996, due primarily to proceeds received from
the issuance of Class A Common Stock and various notes payable, which was
partially offset by the utilization of a portion of these proceeds to purchase
BRACC and repay vehicle and non-vehicle debt. Net cash provided by financing
activities for 1996 increased 85.1% to $66.2 million from $35.7 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.
<PAGE> 6
Fleet Financing Facilities
Historically, the Company'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 31,1997, amounts
outstanding under the Fleet Financing Facilities were comprised of $105.7
million of asset-backed notes issued by the Company's special purpose finance
subsidiary, Team Fleet Financing Corporation ("TFFC"),in August 1994 (the "First
Fleet Financing Facility"), $30.4 million of asset-backed notes assumed by the
Company 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 the Company'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% (6.86% at December 31, 1997). 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% (7.41% at December 31, 1997) 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% (6.71% at December 31,
1997). 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% (7.11% at December 31, 1997) 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. As of December 31, 1997,
the Commercial Paper Facility has various interest rates, which range between
5.75% and 6.15%. 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% (6.36% at December 31, 1997). Six monthly principal
payments of $83.3 million commence in April 1999 with the last payment due in
September 1999.
<PAGE> 7
The Debt Placements
Concurrently with the Budget Acquisition, the Company issued $45.0 million
aggregate principal amounts 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
3,986,046 shares of Class A Common Stock, bear interest at a rate of 7% and
mature in 2007. At a conversion price of $27.96 per share, the Series B
Convertible Notes are convertible into 1,609,436 shares of Class A Common Stock,
bear interest at a rate of 6.85% and mature in 2007.
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 December 31, 1997, the
Company had $238.1 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 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 letters of credit and loans outstanding 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% 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 inter bank 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 0.125% 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 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).
<PAGE> 8
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) $294,500 plus 50% of the net income of the Company of 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 December 31,
1997, declining to 3.25. to 1.00 for the quarter ending December 31, 1999 and
each fiscal quarter thereafter; and (c) minimum interest coverage ratio (as
defined) of 2.50 to 1.00 for the quarter ending December 31, 1997, increasing to
3.25 to 1.00 for the quarter ending September 30, 1999 and each fiscal quarter
thereafter.
CHANGE IN FINANCIAL CONDITION
Total assets increased $3.0 billion from $697.8 million at December 31,
1996 to $3.7 billion at December 31, 1997. This increase resulted primarily from
increases in revenue-earning vehicles of $1.7 billion and intangibles of $461.3
million resulting from the Budget Acquisition. Total liabilities increased $2.7
billion from $575.4 million at December 31, 1996 to $3.2 billion at December 31,
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 $338.5 million was largely 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.
SEASONALITY
Generally, in the vehicle rental industry, revenues increase in the spring
and summer months 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.
<PAGE> 9
YEAR 2000 ISSUE
The Company has assessed and continues to assess the impact of the year
2000 ("Y2K") on its reporting systems and operations (the "Y2K Issue"). The Y2K
Issue exists because many computer systems and applications currently use
two-digit date fields to designate a year. As the century date occurs, certain
date sensitive systems will recognize the year 2000 as the year 1900 or may not
recognize the date at all. This inability to properly treat or recognize the
year 2000 may cause computer systems and applications to process critical
information incorrectly.
During 1997, the Company recognized approximately $2.2 million in expenses
to modify existing computer systems and applications and estimates that an
aggregate of approximately $6.7 million will be incurred in 1998 and 1999
specifically for Y2K modification. The most significant systems undergoing or to
undergo modifications are the reservation and rental transaction processing
systems. A failure in these Systems could cause significant disruption in
customer service levels and therefore materially impact the Company's operating
results and financial condition. The Company expects to complete all major
modification efforts by mid-1999.
ENVIRONMENTAL MATTERS
The Company has assessed and continues to assess the impact of
environmental remediation efforts on its operations. The Company's exposure
largely relates to the clean-up and replacement of underground gasoline storage
tanks.
During 1997, the Company recognized approximately $.7 million in expenses
related to remediation efforts and estimates that an aggregate of approximately
$3.3 million will be incurred in 1998 and 1999. Based on past experience,
management expects these estimates will be sufficient to satisfy anticipated
costs of known remediation requirements. However, due to factors such as
continuing changes in the 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.
Item 7. Financial Statements and Exhibits
(c) Exhibits:
The following exhibits are filed as part of this Report:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
<S> <C>
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche LLP
</TABLE>
<PAGE> 10
SIGNATURES
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.
/s/ Robert L. Aprati
-----------------------------------
By: Robert L. Aprati
Executive Vice President,
General Counsel and Secretary
Dated: July 2, 1998
<PAGE> 11
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Budget Group, Inc.:
We have audited the consolidated balance sheets of Budget Group, Inc.
(a Delaware corporation formerly known as Team Rental Group, Inc.) and
subsidiaries as of December 31, 1996 and 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for the three years
in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
1995 consolidated statements of income, stockholders' equity and cash flows of
Budget Group, Inc. and subsidiaries, prior to their restatement for the effect
of the merger with Cruise America, Inc. Such statements reflect total revenues
of 63 percent of the related consolidated total revenues after giving effect to
the merger with Cruise America, Inc. These statements were audited by other
auditors whose report has been furnished to us and our opinion, insofar as it
relates to amounts included for Budget Group, Inc., prior to their restatement
for the effect of the merger with Cruise America, Inc., is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits and
the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Budget Group, Inc.
and subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orlando, Florida,
March 20, 1998
(except with respect to the matters
discussed in Note 17, as to which
the date is June 19, 1998)
F-2
<PAGE> 12
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Budget Group, Inc.:
We have audited the consolidated statements of income, stockholders' equity
and cash flows of Budget Group, Inc. (formerly known as Team Rental Group, Inc.)
for the year ended December 31, 1995, which are not separately included herein.
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 audit.
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, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of Budget Group,
Inc. for the year ended December 31, 1995 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
April 12, 1996
F-3
<PAGE> 13
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------- ----------
(IN THOUSANDS EXCEPT
SHARE AND PER SHARE
DATA)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 54,009 $ 161,455
Restricted cash............................................. 66,336 282,731
Trade and vehicle receivables, net.......................... 32,192 334,018
Vehicle inventory........................................... 28,490 46,944
Revenue earning vehicles, net............................... 401,493 2,093,304
Property and equipment, net................................. 28,838 147,547
Prepaid expenses and other assets........................... 18,151 91,681
Intangibles, including goodwill, less accumulated
amortization of $3,285 in 1996 and $11,739 in 1997........ 70,893 532,228
-------- ----------
$700,402 $3,689,908
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable............................................... $531,396 $2,686,199
Accounts payable, accrued and other liabilities............. 36,515 434,291
Deferred income taxes....................................... 10,046 110,479
-------- ----------
Total liabilities................................. 577,957 3,230,969
-------- ----------
COMMITMENTS AND CONTINGENCIES (NOTES 9, 11, 13 AND 17)
COMMON STOCK WARRANT........................................ 2,000 --
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 250,000 shares authorized,
no shares issued or outstanding........................... -- --
Series A convertible preferred stock, $0.01 par value,
10,000 shares authorized, no shares issued or
outstanding............................................... -- --
Class A common stock, $0.01 par value, one vote per share,
17,500,000 (in 1996) and 35,000,000 (in 1997) shares
authorized, 10,972,090 (in 1996) and 25,528,532 (in 1997)
shares issued............................................. 109 255
Class B common stock, $0.01 par value, 10 votes per share,
2,500,000 shares authorized, 1,936,600 shares issued (in
1996 and 1997)............................................ 19 19
Additional paid-in capital.................................. 114,891 425,222
Foreign currency translation adjustment..................... (720) (2,477)
Retained earnings........................................... 6,476 36,250
Treasury stock, at cost (36,667 shares of Class A common
stock).................................................... (330) (330)
-------- ----------
Total stockholders' equity........................ 120,445 458,939
-------- ----------
Total liabilities and stockholders' equity........ $700,402 $3,689,908
======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 14
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ----------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Operating revenue:
Vehicle rental revenue.................................... $151,733 $276,294 $1,070,436
Retail vehicle sales revenue.............................. 86,178 169,336 289,111
Royalty fees and other.................................... 1,571 2,178 51,889
-------- -------- ----------
Total operating revenue........................... 239,482 447,808 1,411,436
-------- -------- ----------
Operating costs and expenses:
Direct vehicle and operating.............................. 23,019 48,306 143,163
Depreciation -- vehicle................................... 38,077 71,734 292,112
Depreciation -- non-vehicle............................... 2,287 3,576 15,076
Cost of vehicle sales..................................... 76,848 146,513 251,068
Advertising, promotion and selling........................ 13,723 25,165 95,805
Facilities................................................ 12,409 21,387 96,804
Personnel................................................. 34,728 63,876 260,330
General and administrative................................ 14,323 17,807 77,628
Amortization.............................................. 859 1,843 8,454
-------- -------- ----------
Total operating costs and expenses................ 216,273 400,207 1,240,440
-------- -------- ----------
Operating income............................................ 23,209 47,601 170,996
-------- -------- ----------
Other (income) expense:
Vehicle interest expense.................................. 20,491 32,405 101,066
Non-vehicle interest expense.............................. 728 1,732 20,075
Interest income -- restricted cash........................ (1,348) (781) (5,744)
Non-recurring bank fees................................... -- 1,275 --
Related party interest expense............................ 159 118 --
-------- -------- ----------
Total other expense............................... 20,030 34,749 115,397
-------- -------- ----------
Income before income taxes.................................. 3,179 12,852 55,599
Provision for income taxes.................................. 1,467 5,101 25,825
-------- -------- ----------
Net income.................................................. $ 1,712 $ 7,751 $ 29,774
-------- -------- ----------
Weighted average number of shares outstanding -- basic...... 7,970 10,836 20,112
-------- -------- ----------
Basic earnings per share.................................... $ 0.21 $ 0.72 $ 1.48
-------- -------- ----------
Weighted average number of shares outstanding -- diluted.... 8,007 11,149 27,863
-------- -------- ----------
Diluted earnings per share.................................. $ 0.21 $ 0.70 $ 1.25
======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 15
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FOREIGN
CONVERTIBLE ADDITIONAL CURRENCY RETAINED TOTAL
PREFERRED COMMON PAID-IN TRANSLATION EARNINGS TREASURY STOCKHOLDERS'
STOCK STOCK CAPITAL ADJUSTMENT (DEFICIT) STOCK EQUITY
----------- ------ ---------- ----------- --------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995....... $ -- $ 75 $ 54,036 $ (833) $(2,987) $ -- $ 50,291
Net income................... -- -- -- -- 1,712 -- 1,712
Shares issued in business
combinations............... -- 12 12,825 -- -- -- 12,837
Foreign currency
translation................ -- -- -- 148 -- -- 148
Proceeds from exercise of
stock options.............. -- -- 70 -- -- -- 70
Class A common stock acquired
for treasury............... -- -- -- -- -- (330) (330)
--------- ---- -------- ------- ------- ----- --------
BALANCE, DECEMBER 31, 1995..... -- 87 66,931 (685) (1,275) (330) 64,728
Net income................... -- -- -- -- 7,751 -- 7,751
Shares issued in business
combinations............... -- 2 2,725 -- -- -- 2,727
Warrants issued in
conjunction with
financing.................. -- -- 686 -- -- -- 686
Net proceeds from stock
offering .................. -- 38 44,402 -- -- -- 44,440
Foreign currency translation
adjustment................. -- -- -- (35) -- -- (35)
Proceeds from exercise of
stock options.............. -- 1 147 -- -- -- 148
--------- ---- -------- ------- ------- ----- --------
BALANCE, DECEMBER 31, 1996..... -- 128 114,891 (720) 6,476 (330) 120,445
Net income................... -- -- -- -- 29,774 -- 29,774
Shares issued in business
combinations............... 105,750 2 8,521 -- -- -- 114,273
Net proceeds from stock
offerings.................. -- 91 188,406 -- -- -- 188,497
Proceeds from exercise of
stock options.............. -- 6 5,663 -- -- -- 5,669
Foreign currency
translation................ -- -- -- (1,757) -- -- (1,757)
Conversion of preferred
stock...................... (105,750) 45 105,705 -- -- -- --
Proceeds from exercise of
warrants................... -- 2 2,036 -- -- -- 2,038
--------- ---- -------- ------- ------- ----- --------
BALANCE, DECEMBER 31, 1997..... $ -- $274 $425,222 $(2,477) $36,250 $(330) $458,939
========= ==== ======== ======= ======= ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 16
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................ $ 1,712 $ 7,751 $ 29,774
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 40,821 76,491 312,087
Deferred income tax provision.......................... 1,332 4,247 25,836
Warrants issued in connection with financing........... -- 686 --
Changes in operating assets and liabilities, net of
effects from acquisitions:
Trade and vehicle receivables, net..................... (10,356) (2,988) (95,635)
Prepaid expenses and other assets...................... (1,606) (53) (7,359)
Vehicle inventory...................................... (2,987) (1,253) (3,284)
Accounts payable, accrued and other liabilities........ 2,286 (7,704) (25,774)
-------- -------- ----------
Net cash provided by operating activities......... 31,202 77,177 235,645
-------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in restricted cash balance......................... (13,271) 1,395 (213,715)
Proceeds from sale of revenue earning vehicles............ 317,658 484,084 1,747,286
Proceeds from sale of property and equipment.............. 3 4 19,490
Purchases of revenue earning vehicles..................... (362,038) (569,118) (2,063,627)
Purchases of property and equipment....................... (4,804) (3,362) (10,893)
Payment for acquisitions, net of cash acquired............ (6,507) (5,064) (143,164)
-------- -------- ----------
Net cash used in investing activities............. (68,959) (92,061) (664,623)
-------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from equity transactions, net.................... 70 44,588 196,204
Net increase (decrease) in vehicle obligations............ 28,672 (208,920) (694,100)
Net increase (decrease) in working capital facilities..... 6,890 (9,500) --
Net increase (decrease) in commercial paper............... (276) (4,900) 348,850
Proceeds from other notes payable......................... 3,399 256,000 710,000
Principal payments on other notes payable................. (2,608) (8,876) (24,099)
Payment of financing fees................................. (76) (2,237) --
Purchase of treasury stock................................ (330) -- --
-------- -------- ----------
Net cash provided by financing activities......... 35,741 66,155 536,855
-------- -------- ----------
Effect of exchange rate changes on cash................... 148 (35) (431)
-------- -------- ----------
Net increase (decrease) in cash and cash equivalents...... (1,868) 51,236 107,446
Cash and cash equivalents, beginning of year.............. 4,641 2,773 54,009
-------- -------- ----------
Cash and cash equivalents, end of year.................... $ 2,773 $ 54,009 $ 161,455
======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 17
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(1) SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Budget Group, Inc. and subsidiaries (the "Company") are engaged in the
business of the daily rental of vehicles, including cars, trucks, passenger vans
and recreational vehicles (through both owned and franchised operations) and the
sale of late model used vehicles and new recreational vehicles. 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 (formerly Team Rental Group,
Inc.) to Budget Group, Inc. Prior to the acquisition (the "BRACC Acquisition"),
the Company was the largest United States franchisee of BRACC. On January 28,
1998, the Company completed its acquisition of Cruise America, Inc. ("Cruise")
in a stock-for-stock merger accounted for as a pooling of interests. In
connection with the merger, the Company issued 1,623,462 shares of Class A
common stock in exchange for all the outstanding common stock of Cruise. In
addition, the Company issued 111,478 options to purchase Class A common stock in
exchange for all of the outstanding options to purchase stock of Cruise.
The accompanying consolidated financial statements have been restated to
include the accounts of Cruise as if the companies had combined at the beginning
of the first period presented. Prior to the merger, Cruise's fiscal year ended
on April 30. In recording the business combination, Cruise's prior year
financial statements have been restated to conform with the Company's fiscal
year end.
There were no significant transactions between the Company and Cruise prior
to the combination and immaterial adjustments were recorded to conform Cruise's
accounting policies. The results of operations for the separate companies and
the combined amounts presented in the consolidated statements of income are as
follows.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Operating revenue
Budget Group, Inc......................................... $149,729 $357,370 $1,303,762
Cruise America, Inc. ..................................... 89,753 90,438 107,674
-------- -------- ----------
Combined............................................... $239,482 $447,808 $1,411,436
======== ======== ==========
Net Income
Budget Group, Inc. ....................................... $ 337 $ 4,497 $ 36,926
Cruise America, Inc. ..................................... 1,375 3,254 (7,152)
-------- -------- ----------
Combined............................................... $ 1,712 $ 7,751 $ 29,774
======== ======== ==========
</TABLE>
Company-owned vehicle rental operations are located primarily throughout
the United States and Western Europe. The largest concentration (approximately
20%) 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,
F-8
<PAGE> 18
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under which the Company's share of operating results is reflected in income as
earned and dividends are credited against the investment when received.
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 funds borrowed under medium term note and
commercial paper programs not invested in revenue earning vehicles. Under the
terms of these agreements, any unused funds are required to be maintained in
restricted accounts and are invested in qualified short-term instruments.
TRADE AND VEHICLE RECEIVABLES, NET
Trade and vehicle receivables are stated net of the related allowance for
doubtful accounts. The following table reflects the activity in the allowance
for doubtful accounts for each of the three years in the period ended December
31, 1997:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ -------
<S> <C> <C> <C>
Balance at beginning of year............................... $ 655 $2,451 $ 4,063
Provision.................................................. 802 453 8,415
Writeoffs.................................................. (1,350) (181) (9,035)
Increase due to acquisitions............................... 2,344 1,340 45,629
------- ------ -------
Balance at end of year..................................... $ 2,451 $4,063 $49,072
======= ====== =======
</TABLE>
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 or fair market value at the date of acquisition, as
appropriate, and are depreciated over their estimated economic lives or at rates
corresponding to manufacturers' repurchase program guidelines, where applicable.
Repurchase programs typically require the manufacturers to repurchase the
vehicles after varying time frames at agreed upon prices (subject to defined
condition and mileage standards). 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 period of the vehicles. Gains and losses upon the sale of
revenue earning vehicles are recorded as an adjustment to depreciation expense.
F-9
<PAGE> 19
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost or fair market value at the date
of acquisition, as appropriate. Depreciation is being provided on the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings................................................... 10-25 years
Equipment, furniture and fixtures........................... 3-10 years
</TABLE>
The carrying value of property and equipment 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, 1997, the assessment of recoverability
will be impacted if estimated projected undiscounted operating cash flows are
not achieved.
DEFERRED FINANCING FEES
Direct costs incurred in connection with the Company's borrowings have been
recorded as a prepaid expense and are being amortized over the terms of the
related loan agreements to interest expense on the straight-line method, which
approximates the effective interest 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.
COMPUTER SOFTWARE SYSTEMS
The Company's purchased reservation system and associated applications and
databases have been recorded at fair market value at the date of acquisition.
Costs associated with the internal development of other computer software
systems and system enhancements are capitalized. Amortization is being provided
on the straight-line method over two to eight years.
INTANGIBLES, INCLUDING GOODWILL
Intangible assets, net, consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Franchise agreements........................................ $ -- $118,000
Trade name.................................................. -- 187,817
Goodwill.................................................... 70,893 226,411
------- --------
$70,893 $532,228
======= ========
</TABLE>
Identifiable intangible assets primarily arose from the allocation of
purchase prices of businesses acquired. Franchise agreements and trade name
relate to the BRACC Acquisition. Goodwill represents the excess of the purchase
price over the estimated fair value of all identifiable assets acquired. The
intangible assets are amortized over 40 years using the straight-line method.
The carrying value of intangibles 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, 1997, the assessment of recoverability will be
impacted if estimated projected undiscounted operating cash flows are not
achieved.
F-10
<PAGE> 20
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ENVIRONMENTAL COSTS
Environmental remediation costs are recorded in accounts payable, accrued
and other liabilities and in facilities expense in the accompanying consolidated
financial statements 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 largely self-insured with respect to personal and property
liability claims up to specified limits. Third-party insurance is maintained in
limited areas and for claims in excess of those specified limits. A liability in
the amount of approximately $5,130 and $129,774 as of December 31, 1996 and
1997, respectively, which is included in accounts payable, accrued and other
liabilities, is recorded for known claims and for incurred but not reported
incidents based on actuarially computed estimates of 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 $58,156 at
December 31, 1997, 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 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 Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation".
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.
ROYALTY FEES AND OTHER REVENUES
Royalty fees and other revenues largely consist of monthly royalty fees
from franchisees, income before interest and taxes for insurance product 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.
F-11
<PAGE> 21
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ADVERTISING, PROMOTION AND SELLING
Advertising, promotion and selling expense, other than direct response
advertising, are charged to expense as incurred. The Company incurred
advertising expense of $4,244, $9,094 and $36,636 in 1995, 1996 and 1997,
respectively.
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 and other assets in the accompanying consolidated balance
sheets. Accounts receivable under cap agreements are accrued with a
corresponding reduction of interest expense. There were no such agreements
outstanding at December 31, 1997.
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. There were no
such contracts outstanding at December 31, 1997. The Company does not engage in
speculative derivatives.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share". SFAS No. 128 established new 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.
Basic EPS was calculated by dividing net income by the weighted average
number of common shares outstanding during the period. Diluted EPS was
calculated by dividing net income available to common stockholders after assumed
conversion of dilutive securities by the sum of the weighted average number of
common shares outstanding plus all additional common shares that would have been
outstanding if potentially dilutive common shares had been issued. The following
table reconciles the net income and number of shares utilized in the EPS
calculations for each of the three years in the period ended December 31, 1997
(share information in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Net income................................................. $1,712 $ 7,751 $29,774
Effect of interest and loan fee amortization on convertible
securities -- net of income taxes........................ -- -- 4,983
------ ------- -------
Net income available to common stockholders after assumed
conversion of dilutive securities........................ $1,712 $ 7,751 $34,757
------ ------- -------
Weighted average number of common shares used in basic
EPS...................................................... 7,970 10,836 20,112
Effect of dilutive securities:
Stock options.............................................. 37 313 704
Convertible securities..................................... -- -- 7,047
------ ------- -------
Weighted average number of common shares and dilutive
potential common stock used in diluted EPS............... 8,007 11,149 27,863
====== ======= =======
</TABLE>
F-12
<PAGE> 22
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options to purchase approximately 77,000 shares of Class A common stock
were outstanding at December 31, 1997, but were not included in the computation
of diluted EPS because the options' exercise price was greater than the average
market price of the stock for the period.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation", which encourages, but does not
require, companies to adopt the fair value based method of accounting for
stock-based employee compensation plans. Under the fair value based 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 earnings per share,
as if the fair value based method of accounting had been applied.
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 3,821,007 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.
The Company sold 8,625,000 shares of Class A common stock on April 29, 1997
(at a price of $21.625 per share) raising proceeds of $174,489, net of
applicable offering costs. An additional 450,000 shares of Class A common stock
were sold on October 1, 1997 (at a price of $33.00 per share) raising net
proceeds of $14,008. The net proceeds of the April offering were used to provide
a portion of the financing for the BRACC Acquisition. The net proceeds of the
October offering were used for working capital purposes.
(3) ACQUISITIONS
During 1995, 1996 and 1997, the Company acquired certain Budget franchise
operations, retail vehicle sales operations, a commuter van pooling operation,
BRACC and an insurance replacement car rental business. 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 tangible and identifiable intangible assets acquired and
liabilities assumed. The accompanying consolidated statements of income and cash
flow reflect the operations of the acquired companies from their respective
acquisition dates.
1995 ACQUISITIONS
Acquisition of 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.
F-13
<PAGE> 23
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Acquisition of 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.
Acquisition of 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.
Acquisition of BRAC-OPCO Franchise -- In October 1995, the Company
purchased all of the outstanding stock of BRAC-OPCO, Inc., which operated 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
Acquisition of VPSI, Inc. ("VPSI") 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 provided 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 $18,000, consisting of cash of approximately
$5,000, promissory notes of $10,000 and 272,727 shares of Class A common stock.
Acquisition of ValCar Rental Car Sales, Inc. ("ValCar") -- In August 1996,
the Company acquired all of the outstanding stock of ValCar for $400 in cash.
ValCar owned and operated four retail vehicle sales facilities in Indianapolis,
Indiana, and was formerly owned by a director and officer of the Company.
1997 ACQUISITIONS
BRACC Acquisition -- On January 13, 1997, the Company entered into an
agreement to purchase all of the outstanding shares of BRACC in a purchase
transaction. The cash portion of the purchase price (approximately $275,000) was
partially funded through the April stock offering (see Note 2 to supplemental
consolidated financial statements). The Company also issued to Ford Motor
Company 4,500 shares of Series A convertible, non-voting preferred stock, each
share of which was converted into 1,000 shares of the Company's Class A common
stock. 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 beginning on January 12) and $95,175 at the time of
issuance. The Company also entered into the following debt financing
transactions concurrently with the BRACC Acquisition: (i) $165,000 of guaranteed
senior notes at a rate of 9.57% maturing in 2007; (ii) $45,000 of convertible
subordinated notes at a rate of 6.85% 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 secured working capital facility
bearing interest at an initial rate of 1.75% over LIBOR and secured primarily by
accounts receivable, cash and unencumbered vehicles.
Acquisition of Premier Car Rental -- On July 31, 1997, the Company
acquired, through its wholly owned subsidiary, Premier Car Rental LLC
("Premier"), the fleet and certain other assets and assumed certain liabilities
of Premier Car Rental, Inc. for approximately $87,200, consisting of $2,000 in
cash and the refinancing of approximately $85,200 of Premier Car Rental, Inc.'s
outstanding fleet indebtedness. Premier operates as its own brand and serves the
insurance replacement market.
F-14
<PAGE> 24
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Acquisition of St. Louis Franchise -- On October 1, 1997, the Company
purchased all of the outstanding stock of Budget Rent a Car of St. Louis, Inc.,
located in St. Louis, Missouri, for approximately $9,524, consisting of cash of
$1,000 and 246,167 shares of Class A common stock.
If the 1996 and 1997 acquisitions had occurred at the beginning of 1996,
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 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
Operating revenue........................................... $1,617,869 $1,784,440
Net income.................................................. 23,930 15,872
EPS -- basic................................................ 1.21 0.69
EPS -- diluted.............................................. 0.97 0.58
</TABLE>
(4) REVENUE EARNING VEHICLES
Revenue earning vehicles consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Revenue earning vehicles.................................... $438,248 $2,379,434
Less -- accumulated depreciation............................ (36,755) (286,130)
-------- ----------
$401,493 $2,093,304
======== ==========
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment, net, consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Land........................................................ $ 8,552 $ 30,301
Buildings and leasehold improvements........................ 24,445 101,427
Furniture, fixtures and office equipment.................... 18,968 54,225
-------- --------
51,965 185,953
Less -- accumulated depreciation and amortization........... (23,127) (38,406)
-------- --------
$ 28,838 $147,547
======== ========
</TABLE>
(6) PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets include purchased software and
capitalized software systems development costs, net of accumulated amortization,
which amounts to approximately $6,806 at December 31, 1997. In addition, prepaid
expenses and other assets include the Company's 20% investment in a foreign
rental operation.
The revenue of the Company's investee amounts to less than 10% of
consolidated revenues and the amount of undistributed earnings included in
consolidated retained earnings is not significant.
F-15
<PAGE> 25
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) NOTES PAYABLE
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Commercial paper............................................ $ -- $ 871,448
Medium term notes:
Senior...................................................... 304,500 1,267,376
Subordinated................................................ 17,182 44,682
Convertible subordinated notes.............................. 80,000 125,000
Vehicle obligations......................................... 91,889 86,400
Guaranteed senior notes..................................... -- 165,000
Senior term notes........................................... 17,013 14,171
Foreign notes............................................... -- 66,781
Note payable to vendor...................................... -- 15,677
Other....................................................... 20,812 29,664
-------- ----------
$531,396 $2,686,199
======== ==========
</TABLE>
COMMERCIAL PAPER
The $900,000 commercial paper facility (the "Paper") was established in
April 1997, bears interest at rates ranging from 5.75% to 6.15% at December 31,
1997, and 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 ($825,000) or a related letter of credit
($95,000). The Paper is issued periodically with maturities of up to 58 days. It
is the Company's intention and ability to renew the liquidity facility or to
obtain financing under similar terms when the present agreement expires in April
1998. No amounts were drawn under the bank provided liquidity facility or
related letter of credit at December 31, 1997.
MEDIUM TERM NOTES
Medium term notes are comprised of notes issued in August 1994 ("TFFC-94
notes"), notes assumed in the acquisition of BRAC-OPCO, Inc. in October 1995
("OPCO notes"), notes issued in December 1996 ("TFFC-96 notes"), notes issued in
April 1997 ("TFFC-97 notes") and notes assumed in the BRACC Acquisition
("BFFC-94A notes") (collectively "MTN notes"). MTN notes are secured by the
underlying vehicles and restricted cash of $66,336 and $282,731 at December 31,
1996 and 1997, respectively. Under limited circumstances the MTN notes may be
repaid by draws under related letters of credit amounting to $85,000 at December
31, 1997. No amounts were drawn under the related letter of credit at December
31, 1997.
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,
1996 and 1997, bear interest at an average LIBOR rate, as defined, plus 0.75%
(6.86% per annum at December 31, 1997). 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, 1996 and 1997, bear interest at an average LIBOR rate, as defined, plus
1.30% (7.41% per annum at December 31, 1997) and are payable in full in December
1999. Interest on the TFFC-94 notes is payable monthly.
The BFFC-94A notes consist of an aggregate principal balance of $500,000 at
December 31, 1997 and bear interest at an average LIBOR rate, as defined, plus
0.50% (6.36% per annum at December 31, 1997). Interest on the BFFC-94A notes is
payable monthly. Monthly principal payments of $83,333 commence in April 1999,
with the last payment due in September 1999.
F-16
<PAGE> 26
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The OPCO notes consist of senior notes and subordinated notes. The senior
notes, with an aggregate principal balance of $38,500 and $28,876 at December
31, 1996 and 1997, bear interest at an average LIBOR rate, as defined, plus
0.60% (6.71% per annum at December 31, 1997). Monthly principal payments of
$4,812 commenced 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, 1996 and 1997, bear interest at an average LIBOR rate, as defined, plus 1.0%
(7.11% per annum at December 31, 1997) 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 and 1997, bear interest at 6.65% per annum. Monthly principal payments of
$13,833 commence in May 2001 with the last payment due in April 2002. The
subordinated notes, with an aggregate principal balance of $10,000 at December
31, 1996 and 1997, bear interest at 7.10% per annum and are payable in full in
2002. Interest on the TFFC-96 notes is payable monthly.
The TFFC-97 notes consist of senior notes and subordinated notes. The
senior notes, with an aggregate principal balance of $472,500 at December 31,
1997, bear interest at 7.35% per annum. Monthly principal payments of $39,375
commence in November 2001, with the last payment due in October 2002. The
subordinated notes, with an aggregate principal balance of $27,500 at December
31, 1997, bear interest at 7.80% per annum and are payable in full in 2002.
Interest on the TFFC-97 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 7.0% per annum due
2003. The term of the notes was extended to 2007 in conjunction with the BRACC
Acquisition. At a conversion price of $20.07 per share, the convertible
subordinated notes are convertible into 3,986,046 shares of Class A common
stock. See Note 17 for a subsequent event related to these notes.
In April 1997, the Company issued convertible subordinated notes with an
aggregate principal amount of $45,000 bearing interest at 6.85% per annum due
2007. At a conversion price of $27.96 per share, the convertible subordinated
notes are convertible into 1,609,436 shares of Class A common stock.
VEHICLE OBLIGATIONS
Vehicle obligations consist of outstanding lines of credit to purchase
rental vehicles and vehicle inventory. Collateralized lines of credit at
December 31, 1997, consist of $13,000 for rental cars and approximately $27,000
for retail car sales inventory with maturity dates through May 1998 and
approximately $125,000 for recreational rental and sales vehicles with
maturities through December 2001. Vehicle obligations are collateralized by
vehicles financed under these credit facilities and proceeds from the sale,
lease or rental of rental vehicles and vehicle inventory.
Vehicle obligations relating to the rental fleet are generally amortized
over five to 15 months with monthly principal payments generally ranging from
2.0% to 3.0% 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 10.5% at December
31, 1997. 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 repurchase programs or
from the sale of the vehicles.
GUARANTEED SENIOR NOTES
Concurrent with the BRACC Acquisition, the Company issued $165,000 of
guaranteed senior notes. The guaranteed senior notes bear interest at 9.57% per
annum, mature in 2007 and are unsecured. The agreement
F-17
<PAGE> 27
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under which the notes were issued includes certain covenants, the most
restrictive of which require the Company to maintain certain financial ratios
and minimum net worth. At December 31, 1997, the Company was in compliance with
all covenants. See Note 17 for a subsequent event related to these notes.
SENIOR TERM NOTES
The senior term notes bear interest at 9.0% per annum and are payable in
annual installments through March 2002.
FOREIGN NOTES
The foreign notes primarily provide financing for vehicle purchases and the
funding of working capital. At December 31, 1997, approximately $64,885 relates
to vehicle debt while $1,896 relates to the funding of working capital and
various other debt. The foreign notes are largely secured by vehicles, bear
interest at rates ranging from 6.55% to 9.0% per annum and mature from 1998
through 2003.
NOTE PAYABLE TO VENDOR
The note payable to vendor relates to the Company's license agreement for
the reservation system and associated applications and databases. The note bears
interest at 6.20% per annum and is due in November 1998.
WORKING CAPITAL FACILITIES
The Company has a $300,000 five-year senior, secured revolving credit
facility, bearing interest at an initial rate of 1.75% over LIBOR. At December
31, 1997, the Company had $238,156 in letters of credit outstanding under this
facility. The working capital facility is secured by eligible cash, eligible
receivables and unencumbered vehicles. The agreement governing the credit
facility includes certain covenants, the most restrictive of which require the
Company to maintain certain financial ratios and minimum tangible net worth and
restrict the payment of cash dividends. At December 31, 1997, the Company was in
compliance with all covenants. No amounts were drawn on this facility at
December 31, 1997. See Note 17 for a subsequent event related to the revolving
credit facility.
Scheduled aggregate maturities of notes payable at December 31, 1997, are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ ----------
<S> <C>
1998........................................................ $1,097,351
1999........................................................ 609,860
2000........................................................ 5,098
2001........................................................ 192,566
2002........................................................ 490,383
Thereafter.................................................. 290,941
----------
$2,686,199
==========
</TABLE>
(8) RELATED PARTY TRANSACTIONS
The Company leases facilities from an entity owned by certain stockholders.
Operating lease payments for the years ended December 31, 1995, 1996 and 1997,
were $220, $227 and $586, respectively. The entity assigned lease payments from
the Company to a bank.
At December 31, 1996 and 1997, the Company had a payable to a stockholder
and director in the amount of $1,500 which is included in notes payable in the
accompanying consolidated balance sheet. The outstanding
F-18
<PAGE> 28
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
balance bears interest at prime plus 2.0% (10.50% per annum at December 31,
1997), is unsecured and is payable on demand.
Approximately $4,013 and $19,811 of cash and cash equivalents are on
deposit with or are being held as agent for the Company by a bank at December
31, 1996 and 1997, respectively. A stockholder and director of the Company
served on the bank's board of directors.
In connection with the BRAC-OPCO franchise 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. BRACC had a similar agreement related to the Los Angeles airport. A
director of the Company is the Chief Executive Officer and a general partner of
the seller. In 1996 and 1997, the Company paid the seller approximately $3,700
and $6,213, respectively, in royalty fees in accordance with these agreements.
For many years, Ford has been BRACC's principal supplier of vehicles and
held an equity interest in the Company from the time of the BRACC Acquisition
through October 6, 1997. 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 BRACC 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.
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.
(9) LEASES
The Company leases certain revenue earning vehicles and facilities under
operating leases that expire at various dates. 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. In addition, the Company guarantees airport commission fees on behalf of
certain licensees.
Expense for operating leases and airport concession fees consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Revenue earning vehicles................................. $ 1,518 $ 1,555 $ 15,914
Facilities:
Minimum rentals.......................................... 7,202 15,403 66,566
Contingent rentals....................................... 3,502 3,353 17,615
------- ------- --------
$12,222 $20,311 $100,095
======= ======= ========
</TABLE>
F-19
<PAGE> 29
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments under noncancellable leases and concession
agreements at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998........................................................ $ 51,028
1999........................................................ 34,925
2000........................................................ 27,427
2001........................................................ 21,425
2002........................................................ 17,509
Thereafter.................................................. 41,575
--------
$193,889
========
</TABLE>
(10) INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Current:
Federal................................................... $ -- $ 104 $ (11)
State..................................................... 145 750 502
Foreign................................................... -- -- 816
Deferred.................................................. 1,322 4,247 24,518
------ ------ -------
$1,467 $5,101 $25,825
====== ====== =======
</TABLE>
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,
-------------------------
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Income tax provision at federal statutory rate.............. $1,078 $4,356 $19,536
Effect of earnings of nontaxable (subchapter S) companies... -- (87) --
Nondeductible portion of amortization of intangibles........ 94 306 2,466
State tax provision, net of federal benefit................. 315 624 876
Change in valuation allowance............................... -- -- 2,361
Other....................................................... (20) (98) 586
------ ------ -------
$1,467 $5,101 $25,825
====== ====== =======
</TABLE>
F-20
<PAGE> 30
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at December 31, relate to the following:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 24,234 $ 78,258
Estimated self insurance liability........................ 1,998 55,358
Accrued expenses -- pension............................... -- 8,549
Accounts receivable, principally due to allowance for
doubtful accounts..................................... -- 8,570
Business tax credit carryforwards......................... 540 7,654
Foreign tax credit carryforwards.......................... -- 1,930
Alternative minimum tax carryforwards..................... 1,072 3,907
Foreign tax assets and net operating loss carryforwards... -- 2,319
Non-deductible reserves, accrued expenses and other....... 4,461 15,683
-------- --------
Total gross deferred tax assets................... 32,305 182,228
Less -- valuation allowance....................... (9,622) (74,666)
-------- --------
22,683 107,562
Deferred tax liabilities:
Difference between book and tax bases of revenue earning
vehicles and property and equipment.................... 30,894 86,654
Intangibles............................................... 1,835 127,878
Other..................................................... -- 3,509
-------- --------
Total gross deferred tax liabilities.............. 32,729 218,041
-------- --------
Net deferred tax liability........................ $ 10,046 $110,479
======== ========
</TABLE>
At December 31, 1997, the Company and its subsidiaries have federal tax
loss carryforwards of approximately $211,233 expiring through 2011. The Company
has recorded a valuation allowance for a portion of the acquired net operating
loss carryforwards and other credit carryforwards due to the uncertainty of
their ultimate realization. Any subsequently recognized tax benefits attributed
to the change in the valuation allowance will reduce intangibles. 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 increase in the valuation allowance during 1997 resulted from
the net operating loss carryforwards and other credit carryforwards acquired in
the BRACC Acquisition that will be limited in their use.
(11) PENSION AND OTHER BENEFIT PLANS
Substantially all employees in 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 plan is to contribute the minimum ERISA contribution required under the
projected unit credit actuarial cost method. The domestic defined benefit
pension plan has been suspended. As a result of this suspension, employees 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 $695 in 1997.
The Company maintains an unfunded, nonqualified plan providing benefits to
certain of its officers, (the "Executive Protection Plan") based on percentage
of final compensation. The cost of the Executive Protection Plan was
approximately $161 in 1997.
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
F-21
<PAGE> 31
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, plus an additional contribution 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 $147 and $4,025
in 1996 and 1997, respectively.
Each of the Company's domestic defined benefit plan's accumulated benefits
exceed the plan's assets at December 31, 1997. 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, 1997:
<TABLE>
<CAPTION>
DOMESTIC FOREIGN
PLANS PLAN
-------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits........................................... $ 29,303 $5,464
Nonvested benefits........................................ 1,033 147
-------- ------
Accumulated benefit obligation.............................. $ 30,336 $5,611
-------- ------
Projected benefit obligation for service rendered to date... $ 30,388 $6,684
Plan assets at fair value, primarily participation in common
trust funds............................................... 17,220 9,056
-------- ------
Excess (deficiency) of plan assets over projected benefit
obligation................................................ (13,168) 2,372
Unrecognized net asset at transition........................ 1,080 (3)
Unrecognized net loss (gain)................................ (6,994) 423
-------- ------
Prepaid (accrued) pension cost.............................. $(19,082) $2,792
-------- ------
Service cost for benefits earned during the period.......... $ 48 $ 537
Interest cost on projected benefit obligation............... 1,383 394
Return on plan assets....................................... (1,213) (754)
Net amortization and deferral............................... 730 --
-------- ------
Pension expense............................................. $ 948 $ 177
======== ======
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation for 1997 was 7%. 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 1997 was 9.5%.
F-22
<PAGE> 32
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------ ------ -------
<S> <C> <C> <C> <C>
Net income.............................................. As Reported $1,712 $7,751 $29,774
Pro Forma 1,339 6,596 25,189
EPS -- basic............................................ As Reported 0.21 0.72 1.48
Pro Forma 0.17 0.61 1.25
EPS -- diluted.......................................... As Reported 0.21 0.70 1.25
Pro Forma 0.17 0.61 1.11
</TABLE>
The calculated 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 1,750,000 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 are exercisable not
less than six months nor more than 10 years after the date of grant. Options
granted under the ISO Plan in 1997 become exercisable between 18 and 24 months
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 and are exercisable not less than
six months nor more than 10 years after the date of grant. Options granted under
the Directors' Plan in 1997 become exercisable six months 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.
A summary of the status of the Company's two stock option plans at December
31, 1995, 1996 and 1997 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............................ 123,783 $10.54
Granted................................................... 202,000 9.50
Exercised................................................. (6,569) 10.69
---------
Outstanding -- December 31, 1995............................ 319,214 9.88
Granted................................................... 572,916 12.05
Exercised................................................. (16,026) 10.23
Forfeited................................................. (8,600) 11.13
---------
Outstanding -- December 31, 1996............................ 867,504 11.29
Granted................................................... 1,674,480 22.87
Exercised................................................. (547,632) 10.66
Forfeited................................................. (86,290) 19.25
---------
Outstanding -- December 31, 1997............................ 1,908,062 21.27
=========
</TABLE>
F-23
<PAGE> 33
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1997, options for 1,668,062 shares and 240,000 shares of
Class A and Class B common stock, respectively, remained outstanding under the
Company's stock option plans.
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Exercisable at end of year
Shares............................................... 117,214 352,721 326,178
Weighted average exercise price...................... $ 10.53 $ 10.36 $ 13.85
Weighted average fair value of options granted during
the year............................................. $ 4.52 $ 4.89 $ 10.07
</TABLE>
At December 31, 1997, 1,413,285 of the 1,908,062 options outstanding have
an exercise price of $22.38 and a remaining contractual life of 9.3 years. Of
these options, 60,000 are exercisable. The remaining 494,777 options have
exercise prices between $9.50 and $36.44, with a weighted average exercise price
of $18.11 and a weighted average remaining contractual life of 8.5 years. Of
these options, 266,178 are exercisable with a weighted average exercise price of
$11.92. The 494,777 options includes the pro forma issuance of 111,478 options
to Cruise option holders with a weighted average exercise price of $12.86.
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 weighted average risk-free rate of return of 5.89% and an expected life of
three years were assumed. For options granted under the Directors' Plan, a
risk-free rate of return of 6.63% and an expected life of five years were
assumed. Additionally, for each option plan there was no expected dividend yield
and an expected volatility of 58%.
(12) COMMON STOCK WARRANT
Concurrent with the acquisition of the Budget franchise in Philadelphia and
in consideration of the abatement of certain future royalty fees to BRACC with
respect to the 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. This warrant has
been retired in 1997 following the Company's acquisition of BRACC.
(13) COMMITMENTS AND CONTINGENCIES
In October 1997, a California jury awarded damages of approximately $7.4
million against Cruise in the lawsuit entitled Altman's America, et al. v.
American Land Cruisers of California et al. The judgment included a $2.6 million
award of punitive damages. In addition, in November 1997, the court awarded
plaintiff's counsel fees and expenses of $2.5 million. The Company believes the
jury verdict is unjust and that the damages awarded are inappropriate and
excessive. The Company intends to vigorously pursue a reversal of the jury
decision or the elimination of the damages awarded through the California Court
of Appeal. The action arose out of a claim for an alleged wrongful termination
by Cruise of a sublease agreement with one of its former concession operators.
The lawsuit has been pending since May 1987 and has been tried twice previously.
The first trial resulted in a judgment for the plaintiff of approximately $3.5
million that was reversed on appeal and remanded for retrial. The second trial
resulted in a net judgment for Cruise of $399,000, which was reduced on appeal
and again remanded for a retrial. Pending appeal, the Company has taken a
one-time charge of $10 million to establish an accrual for damages in the fourth
quarter of 1997. This charge is included in general and administrative expenses
in the accompanying supplemental consolidated statements of income.
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.
F-24
<PAGE> 34
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1997, the Company has accrued $3,301 for estimated environmental
remediation costs and expects to expend approximately $2,600 during 1998.
Amounts receivable from third parties for reimbursement of remediation
expenditures are not significant.
Due to factors such as continuing changes in the 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) 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, TRADE AND VEHICLE RECEIVABLES AND
ACCOUNTS PAYABLE, ACCRUED AND OTHER LIABILITIES
The carrying amounts of these financial assets and liabilities at December
31, 1996 and 1997, 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 market value at December 31, 1996 and 1997, 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 and 1997, due to the
recent issuance of such debt or because such notes do not have terms that differ
materially from those currently available to the Company.
(15) SUPPLEMENTAL CASH FLOW DISCLOSURES
In 1995, the Company issued 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 1996, the Company issued 272,727 shares of Class A common stock with a
value of $2,727 and notes payable of $10,000 for the 1996 acquisitions.
In 1997, the Company issued 4,746,167 shares of Class A common stock with a
value of $114,274 for the 1997 acquisitions. These amounts reflect the
conversion of 4,500 shares of Series A convertible, non-voting preferred stock
into 4,500,000 shares of Class A common stock which were sold by the selling
stockholder in October 1997.
The Company paid interest of $20,656, $34,333 and $109,476 in 1995, 1996
and 1997, respectively.
Income taxes of $346, $1,017, and $1,796 were paid in 1995, 1996 and 1997,
respectively.
F-25
<PAGE> 35
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On occasion, the Company acquires goods and services in exchange for
revenue earning vehicles. During 1997, revenue earning vehicles in the amount of
$2,100 were exchanged for goods and services.
(16) SEGMENT INFORMATION
The Company is engaged in the business of the daily rental of vehicles,
principally cars, trucks, and passenger vans, and the retail sale of used
vehicles.
Segment information for the year ended December 31, 1995, is as follows:
<TABLE>
<CAPTION>
RETAIL VEHICLE
SALES VEHICLE RENTAL CONSOLIDATED
-------------- -------------- ------------
<S> <C> <C> <C>
Sales to unaffiliated customers.................. $86,178 $153,304 $239,482
Depreciation and amortization.................... 193 41,030 41,223
Operating income................................. 5,943 17,266 23,209
Income (loss) before income taxes................ 6,558 (3,379) 3,179
Identifiable assets.............................. 45,782 437,962 483,744
Capital expenditures -- revenue earning
vehicles....................................... -- 362,038 362,038
</TABLE>
Segment information for the year ended December 31, 1996, is as follows:
<TABLE>
<CAPTION>
RETAIL VEHICLE
SALES VEHICLE RENTAL CONSOLIDATED
-------------- -------------- ------------
<S> <C> <C> <C>
Sales to unaffiliated customers.................. $169,336 $278,472 $447,808
Depreciation and amortization.................... 1,482 75,671 77,153
Operating income................................. 4,307 43,294 47,601
Income before income taxes....................... 2,859 9,993 12,852
Identifiable assets.............................. 60,962 639,440 700,402
Capital expenditures -- revenue earning
vehicles....................................... -- 569,118 569,118
</TABLE>
Segment information for the year ended December 31, 1997, is as follows:
<TABLE>
<CAPTION>
RETAIL VEHICLE
SALES VEHICLE RENTAL CONSOLIDATED
-------------- -------------- ------------
<S> <C> <C> <C>
Sales to unaffiliated customers.................. $289,111 $1,122,325 $1,411,436
Depreciation and amortization.................... 283 315,359 315,642
Operating income................................. 1,411 169,585 170,996
Income before income taxes....................... 1,917 53,682 55,599
Identifiable assets.............................. 113,436 3,576,472 3,689,908
Capital expenditures -- revenue earning
vehicles....................................... -- 2,063,627 2,063,627
</TABLE>
(17) SUBSEQUENT EVENTS
On June 19, 1998, pursuant to the Agreement and Plan of Merger, as amended,
entered into on March 4, 1998, the Company acquired all of the outstanding stock
of Ryder TRS, Inc. ("Ryder TRS"), based in Denver, Colorado. As consideration
for the Ryder TRS acquisition, the Company issued 3,455,206 shares of Class A
common stock, paid $125,000 in cash and issued warrants to purchase Class A
common stock, the value of which is capped at $19,000. In addition, the Company
agreed to pay Ryder TRS stockholders a make-whole payment, the amount of which
will depend on the performance of the Class A common stock following the
acquisition. The Company will also assume approximately $522,000 of Ryder
TRS's debt. The acquisition will be accounted for under the purchase method of
accounting.
Concurrent with the closing of the Ryder TRS acquisition, the Company
implemented a number of changes to its capital structure. These changes included
(i) the amendment and restatement of its existing $300,000 secured revolving
credit facility to increase such facility to $550,000, (ii) the conversion of
$80,000 of convertible subordinated notes into 4,305,814 shares of Class A
common stock, including 319,768 shares issued in lieu of interest payments which
the holders of the convertible subordinated notes will forego as a result of
early conversion, (iii) the redemption of $165,000 of guaranteed senior notes,
(iv) the issuance, by a subsidiary of the Company, of 6,000,000 shares of
remarketable term income deferrable equity securities ("High Tides") which
raised approximately $290,250 and (v) the private placement of $1,100,000 of
medium term notes (the "TFFC-98 Notes"). The High Tides accrue distributions at
a rate of 6.25 percent per annum, have a liquidation value of $50 per share and
are convertible into the Company's Class A common stock at the rate of 1.5179
shares of Class A common stock for each High Tide. The TFFC-98 Notes bear
interest at rates ranging from 6.07% to 6.84% and mature at various dates
ranging from July 2002 through October 2006.
F-26
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference of our report included in this Form 8-K into Budget
Group, Inc.'s (formerly known as Team Rental Group, Inc.) previously filed
Registration Statement File No.'s 333-41093, 333-47079, 333-04757 and
333-49819.
July 2, 1998 /s/ Arthur Andersen LLP
Orlando, Florida
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-04757, 333-47079 and 333-49819 of Budget Group, Inc. (formerly known as Team
Rental Group, Inc.) on Form S-8 and Registration Statement No. 333-41093 of
Budget Group, Inc. on Form S-3 of our report dated April 12, 1996, appearing in
the Current Report on Form 8-K of Budget Group, Inc. dated July 2, 1998.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
July 1, 1998
