<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 30,1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ________ to ________
Commission File No.: 0-23962
BUDGET GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-3227576
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
125 Basin Street, Suite 210, Daytona Beach, FL 32114
(Address of principal executive offices)
(904) 238-7035
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
36,911,065 shares of common stock were outstanding as of August 12, 1999,
comprised of 34,974,465 shares of the registrant's Class A common stock, par
value $0.01, and 1,936,600 shares of the registrant's Class B common stock, par
value $0.01.
The Exhibit Index, filed as a part of this report, appears on page 21.
- ----------------------------------------------------------------------------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information PAGE
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999 (unaudited)
and December 31, 1998 3
Consolidated Statements of Operations for the Three and
Six-Month Periods Ended June 30, 1999 and 1998 (unaudited) 4
Consolidated Statement of Changes in Stockholders' Equity
for the Six-Month Period Ended June 30, 1999 (unaudited) 5
Consolidated Statements of Cash Flows for the Six-Month
Periods Ended June 30, 1999 and 1998 (unaudited) 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
PART II. Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Default Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signature Page 22
</TABLE>
2
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PART I. - FINANCIAL STATEMENTS
ITEM 1. CONSOLIDATED BALANCE SHEETS
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 75,224 $ 136,184
Restricted cash 233,310 421,467
Trade and vehicle receivables, net 382,879 425,183
Vehicle inventory 93,324 81,028
Revenue earning vehicles, net 3,578,077 2,839,183
Property and equipment, net 237,580 229,318
Prepaid expenses and other assets 220,447 179,218
Intangibles, including goodwill, net 860,551 822,490
---------- ----------
Total assets $5,681,392 $5,134,071
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable $4,179,522 $3,635,095
Accounts payable, accrued and other liabilities 526,914 517,107
Deferred income taxes 40,119 40,119
---------- ----------
Total liabilities 4,746,555 4,192,321
COMPANY OBLIGATED MANDITORILY REDEEMABLE
SECURITIES OF SUBSIDIARY 291,309 291,160
---------- ----------
STOCKHOLDERS' EQUITY
Common stock 361 360
Additional paid-in-capital 668,962 670,089
Foreign currency translation adjustment (4,267) (5,169)
Accumulated deficit (19,515) (12,677)
Treasury stock (2,013) (2,013)
---------- ----------
Total stockholders' equity 643,528 650,590
---------- ----------
Total liabilities and stockholders' equity $5,681,392 $5,134,071
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
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BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except for per share data)
<TABLE>
<CAPTION>
FOR THE THREE-MONTH FOR THE SIX-MONTH
PERIODS ENDED PERIODS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------------
1999 1998 1999 1998
-------- --------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUE:
Vehicle rental $585,623 $ 450,141 $ 1,072,111 $ 790,096
Retail vehicle sales 174,831 140,746 342,787 238,037
Royalty fees and other 31,248 23,465 56,127 42,204
-------- --------- ----------- -----------
Total operating revenue 791,702 614,352 1,471,025 1,070,337
-------- --------- ----------- -----------
OPERATING EXPENSES:
Direct vehicle and operating 237,891 173,651 464,635 328,093
Depreciation - vehicle 144,882 117,668 281,945 212,190
Cost of retail vehicle sales 151,703 124,578 300,627 210,333
Selling, general and administrative 152,735 125,506 289,718 201,495
Amortization and non-vehicle depreciation 18,278 11,624 35,260 20,740
Pooling expenses -- -- -- 1,595
-------- --------- ----------- -----------
Total operating expenses 705,489 553,027 1,372,185 974,446
-------- --------- ----------- -----------
Operating income 86,213 61,325 98,840 95,891
-------- --------- ----------- -----------
Other expense:
Vehicle interest, net 44,836 37,618 90,177 69,048
Other interest, net 9,894 7,018 12,643 15,855
Debt extinguishment costs -- 9,454 -- 9,454
-------- --------- ----------- -----------
Total other expense, net 54,730 54,090 102,820 94,357
INCOME (LOSS) BEFORE INCOME TAXES 31,483 7,235 (3,980) 1,534
Provision (benefit) for income taxes 10,467 1,833 (6,569) (447)
Distributions on trust preferred securities 4,804 651 9,427 651
-------- --------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 16,212 4,751 (6,838) 1,330
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF
DEBT (Net of income taxes of $26,602) -- (45,296) -- (45,296)
-------- --------- ----------- -----------
NET INCOME (LOSS) $ 16,212 $ (40,545) $ (6,838) $ (43,966)
======== ========= =========== ===========
NET INCOME (LOSS) PER SHARE:
BASIC: Income (loss) before extraordinary item $ 0.45 $ 0.16 $ (0.19) $ 0.05
======== ========= =========== ===========
Extraordinary item $ -- $ (1.54) $ -- $ (1.61)
======== ========= =========== ===========
Net income (loss) $ 0.45 $ (1.37) $ (0.19) $ (1.56)
======== ========= =========== ===========
DILUTED:Income (loss) before extraordinary item $ 0.42 $ 0.16 $ (0.19) $ 0.05
======== ========= =========== ===========
Extraordinary item $ -- $ (1.50) $ -- $ (1.57)
======== ========= =========== ===========
Net income (loss) $ 0.42 $ (1.34) $ (0.19) $ (1.52)
======== ========= =========== ===========
Weighted average number of shares outstanding:
Basic 35,902 29,499 35,879 28,134
Diluted 46,818 30,243 35,879 28,963
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN TRANSLATION ACCUMULATED TREASURY STOCKHOLDERS'
STOCK CAPITAL ADJUSTMENT DEFICIT STOCK EQUITY
------- ---------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 360 $ 670,089 $(5,169) $(12,677) $(2,013) $ 650,590
Comprehensive income:
Net loss -- -- -- $ (6,838) --
Foreign currency translation -- -- 902 -- --
Total comprehensive income (5,936)
Shares issued in acquisition of
business 1 1,017 -- -- -- 1,018
Make-whole payment -- (2,294) -- -- -- (2,294)
Stock compensation -- 150 -- -- -- 150
------- --------- ------- -------- ------- ---------
Balance at June 30, 1999 $ 361 $ 668,962 $(4,267) $(19,515) $(2,013) $ 643,528
======= ========= ======= ======== ======= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX-MONTH PERIODS
ENDED JUNE 30,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,838) $ (43,966)
----------- -----------
Adjustments to reconcile net loss to net cash provided by
operating activities
Extraordinary item -- 71,898
Depreciation and amortization 317,205 227,198
Stock compensation 150 --
Deferred income taxes -- (25,923)
Non-cash debt extinguishment costs -- 8,854
Changes in operating assets and liabilities, net of effects from acquisitions:
Trade and vehicle receivables 42,304 52,739
Vehicle inventory (12,296) (7,916)
Prepaid expenses and other assets (31,629) (45,260)
Accounts payable, accrued and other liabilities 9,807 20,423
----------- -----------
Total adjustments 325,541 302,013
----------- -----------
Net cash provided by operating activities 318,703 258,047
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in restricted cash balance 188,157 (167,467)
Proceeds from sale of revenue earning vehicles 1,501,728 1,241,763
Purchases of revenue earning vehicles (2,576,786) (2,076,968)
Proceeds from the sale of property and equipment 5,721 12,115
Purchases of property and equipment (40,243) (65,081)
Payment for acquisitions, net of cash acquired (1,017) (149,411)
----------- -----------
Net cash used in investing activities (922,440) (1,205,049)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in vehicle obligations 736,018 790,572
Net increase (decrease) in commercial paper (530,604) 14,313
Proceeds from other notes payable 412,636 16,821
Principal payments on other notes payable (73,623) (14,303)
Proceeds from issuance of mandatorily redeemable securities of
subsidiary, net -- 291,000
Make-whole payment (2,294) --
Proceeds from equity transactions, net 1,018 1,651
Early redemption of notes payable -- (190,667)
----------- -----------
Net cash provided by financing activities 543,151 909,387
----------- -----------
Effect of exchange rate changes on cash (374) 82
Net decrease in cash and cash equivalents (60,960) (37,533)
Cash and cash equivalents, beginning of period 136,184 161,455
----------- -----------
Cash and cash equivalents, end of period $ 75,224 $ 123,922
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE> 7
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Budget
Group, Inc. (the "Company") have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The Company
believes that the accompanying consolidated financial statements contain all
adjustments (consisting of normal, recurring adjustments) that, in the opinion
of management, are necessary to present fairly the Company's consolidated
financial condition, results of operations and cash flows for the periods
presented.
It is suggested that these consolidated financial statements be read in
conjunction with the financial statements and the notes thereto contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for the full year ending December 31, 1999.
The Company is 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 new and late model used
vehicles including recreational vehicles. 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 1,623,478 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 for the six-month
period ended June 30, 1998, have been restated to include the accounts of
Cruise as if the companies had combined at the beginning of that period. 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 Cruise included in the
consolidated statements of operations are revenues of $3,652 and a net loss of
$1,836 for January 1998.
Certain amounts in the 1998 and first quarter 1999 consolidated financial
statements have been reclassified to conform with the current year to date
presentation.
2. ACQUISITIONS
Acquisition of Ryder TRS, Inc. - 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 (with respect to the shares
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<PAGE> 8
of Class A common stock issued in the acquisition) to the extent that the Class
A common stock trades below approximately $33 per share over two 30-day
measurement periods ending, respectively, on June 19, 1999 and February 19,
2000. This payment may be made in cash and/or stock, at the Company's option.
See Note 8 to the Company's unaudited consolidated financial statements herein.
The Company also assumed approximately $522,000 of Ryder TRS's debt. The
results of Ryder TRS are included in the Company's results of operations from
June 1, 1998 at which time the Company effectively took control of Ryder TRS.
The Company recorded additional adjustments in connection with the
finalization of the purchase price allocation for the acquisition of Ryder TRS
in the first and second quarters 1999, the most significant of which was
related to the fair market value of revenue earning vehicles of $34.9 million.
Acquisition of Car Dealerships - Effective in June 1998, the Company
purchased three new car dealerships, two located in Florida and one in Indiana.
The dealerships were acquired for cash or a combination of cash and stock
aggregating $16.0 million in cash and the issuance of 445,854 shares of Class A
common stock.
If the acquisitions had occurred at the beginning of the period presented,
the Company's results of operations would be as shown in the following table.
These unaudited pro forma results are not necessarily indicative of the actual
results of operations that would have occurred had the acquisitions actually
been made at the beginning of the respective period.
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
JUNE 30,
----------------------
1998
----------------------
<S> <C>
Operating revenue 1,337,161
Net loss (10,485)
Basic and diluted loss per share (0.29)
</TABLE>
The Company completed several small acquisitions of Budget Rent a Car
franchises and a local market car rental company through June 30, 1999. These
acquisitions are not material either individually or in the aggregate and the
Company does not expect them to have a significant impact on its financial
position or full year results of operations. The acquisitions were primarily
located in France, England, Ohio, and Florida.
3. MAKE-WHOLE PAYMENT
The Company made a cash make-whole payment in April 1999 of $2,294
(resulting in a charge to additional paid in capital) related to the
acquisition of the Montreal franchise in 1998.
4. EARNINGS PER SHARE
Basic earnings per share was calculated by dividing net income (loss) by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share was calculated by dividing net income (loss)
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
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<PAGE> 9
been issued. The following table reconciles the income (loss) before
extraordinary items and number of shares utilized in the earnings per share
calculations.
<TABLE>
<CAPTION>
Three-Month Periods Ended Six-Month Periods Ended
June 30, June 30,
------------------------- -----------------------
1999 1998 1999 1998
------- -------- -------- -------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary item $16,212 $ 4,751 $ (6,838) $ 1,330
Effect of interest, distributions, and loan fee
amortization on convertible securities - net of
income taxes 3,509 -- -- --
------- -------- -------- -------
Net income (loss) available to common stockholders after
assumed conversion of dilutive securities
$19,721 $ 4,751 $ (6,838) $ 1,330
------- -------- -------- -------
(000's) (000's)
Weighted average number of common shares
used in basic EPS 35,902 29,499 35,879 28,134
Effect of dilutive securities:
Stock options 199 744 -- 829
Convertible securities 10,717 -- -- --
------- -------- -------- -------
Weighted average number of common shares
and dilutive potential common stock
used in diluted EPS
46,818 30,243 35,879 28,963
------- -------- -------- -------
</TABLE>
5. RESTRUCTURING
The Company recorded a restructuring charge of approximately $14.9 million
in December 1998. The balance at December 31, 1998 related to the restructuring
was approximately $13 million. This amount related primarily to closing of
vehicle rental and car sales locations and centralization of certain finance
and administration functions of the Company (the "Restructuring"). At June 30,
1999, approximately 70% of the employees affected have been terminated and the
Company has accruals remaining related to the Restructuring of $8.7 million.
During the six-month period ended June 30, 1999 approximately $4.1 million has
been paid or utilized and accrual reductions of approximately $0.1 million have
been recorded.
6. FINANCIAL INSTRUMENTS
SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" establishes accounting and reporting standards for derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an Amendment of FASB Statement No. 133" defers the
effective date of SFAS No. 133 until January 2001 for the Company. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
The Company expects no material impact on its financial condition or results of
operations upon adoption of SFAS No. 133.
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7. BUSINESS SEGMENTS
The Company is engaged in the business of the daily rental of vehicles,
principally cars, trucks and passenger vans, and the sale of used vehicles.
Segments are determined by product line and business activity.
Segment information for the periods ended June 30, 1999 and 1998,
respectively, are:
<TABLE>
<CAPTION>
Three-Month Periods Six-Month Periods
Ended June 30, Ended June 30,
1999 1998 1999 1998
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
Car Rental $ 432,792 $ 379,287 $ 820,351 $ 718,057
Truck Rental and Sales 213,703 121,389 365,187 164,598
Retail Car Sales 166,810 132,932 327,564 224,916
Eliminations (21,603) (19,256) (42,077) (37,234)
--------- --------- ----------- -----------
Total revenue $ 791,702 $ 614,352 $ 1,471,025 $ 1,070,337
========= ========= =========== ===========
Operating income(loss)
Car Rental $ 54,739 $ 43,416 $ 78,653 $ 79,631
Truck Rental and Sales 33,584 25,523 29,822 28,013
Retail Car Sales 475 (732) (2,355) (1,453)
Corporate Overhead (2,585) (6,882) (7,280) (10,300)
--------- --------- ----------- -----------
Total operating income $ 86,213 $ 61,325 $ 98,840 $ 95,891
========= ========= =========== ===========
</TABLE>
8. SUBSEQUENT EVENTS
In July 1999, the Company paid cash of approximately $20.9 million and
issued 693,742 shares of Class A common stock with a value of approximately
$10.3 million for the first of two make-whole payments in conjunction with the
Ryder TRS acquisition. A make-whole is delivered if the price of the stock
issued in the purchase of Ryder TRS falls below a specified price during the
measurement periods. The make-whole payments may be made in cash or stock or a
combination of both at the Company's option.
In August 1999, the Company paid 186,229 shares of Class A common stock
with a value of $2.6 million in make-whole payments related to the Wooten Ford
dealership acquisition in June 1998. The make-whole payment was made since the
price of the stock sold during the specified period fell below the minimum
price per the purchase agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
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 BRACC acquisition,
the Company 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
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territories. This strategy both leveraged management's experience and created
certain operating efficiencies between these complementary businesses.
In June 1998, the Company acquired Ryder TRS which is accounted for by the
purchase method of accounting. The accompanying consolidated financial
statements have been restated to reflect the pooling of interests with Cruise
America, Inc. as if the companies had combined at the beginning of the first
period presented. For a further discussion of these transactions, see Notes 1
and 2 to the Company's unaudited consolidated financial statements herein.
The Company is 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 new and late model used
vehicles including recreational vehicles.
Revenues primarily consist of:
Vehicle rental - revenue generated from renting vehicles to customers
including revenue from loss or collision damage waivers, insurance sales and
other products provided at rental locations. Retail vehicle sales - revenue
generated from the sales of new and late model used vehicles sold at retail or
from retail lots, including recreational vehicles. Royalty fees and other -
fees generated from the Company's licensees and other non-vehicle rental or
sales items.
The Company's expenses primarily consist of:
Direct vehicle and operating - includes wages and related benefits, rent
and concessions paid to airport authorities and costs relating to the operation
and rental of revenue earning vehicles including insurance. Depreciation,
vehicle - depreciation expenses relating to revenue earning vehicles including
net gains or losses on the disposal of such equipment. Cost of retail vehicle
sales - cost of new and late model used vehicles sold at retail or from retail
lots, including recreational vehicles. Selling, general and administrative -
includes reservation, advertising, marketing and other related expenses, net of
third party reimbursements, and commissions to travel agents and other third
parties. Amortization and non-vehicle depreciation - includes amortization of
goodwill and other intangibles as well as depreciation of capitalized assets.
Vehicle and other interest, net interest expense, net of interest earned on
restricted cash, relating primarily to revenue earning vehicle financing.
RESULTS OF OPERATIONS
General Operating Results. Income before extraordinary item for the second
quarter of 1999 increased $11.5 million to $16.2 million compared with income
of $4.8 million in 1998. Earnings before extraordinary item per share for the
second quarter of 1999 increased to $0.42 per diluted share from earnings of
$0.16 per diluted share in 1998, as improvements in the Car Rental and Retail
Car Sales segments, partially offset by seasonal losses in the Truck segment,
increased operating income for the three months ended June 30, 1999. Income
(loss) before extraordinary item decreased $8.2 million for the first six
months of 1999 to a loss of $6.8 million from income of $1.3 million for the
first six months of 1998 primarily due to seasonal losses in the first five
months of 1999 of Ryder TRS.
Operating Revenues. Vehicle rental revenue increased $135.5 million in the
second quarter of 1999 to $585.6 million from $450.1 million in the second
quarter of 1998. Vehicle rental revenue increased $282.0 million to $1,072.1
million for the first six months of 1999 from $790.1 million for the same period
in 1998. These increases were largely due to the acquisition of Ryder TRS in
June 1998, which added a significant number of
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<PAGE> 12
locations and vehicles to the Company's operations, and a 8.9% and 7.6% growth
in BRACC car rental revenue (same market) for the second quarter and year to
date, respectively. Revenue from sales of vehicles increased $34.1 million in
the second quarter of 1999 to $174.8 million from $140.7 million in the second
quarter of 1998. Such revenues for the first six months of 1999 increased
$104.8 million to $342.8 million from $238.0 million. These increases were due
to new stores opened by the Company subsequent to March 31,1999 and the
acquisition of three new car dealerships in June 1998. Royalty fees and other
revenues increased $7.8 million in the second quarter of 1999 to $31.2 million
from $23.5 million in the second quarter of 1998 and increased $13.9 million
for the six months ended June 30, 1999 to $56.1 million from $42.2 million for
the first six months of 1998 largely due to the acquisition of Ryder TRS. These
revenues largely represent royalty and other fees from the Company's
franchisees and revenue from Ryder TRS's move management service.
Operating Expenses. Total operating expenses increased $152.5 million in
the second quarter of 1999 to $705.5 million from $553.0 million in the second
quarter of 1998 and increased $397.7 million to $1,372.2 million from $974.4
million for the six months ended 1999 and 1998, respectively. This increase was
largely due to the addition of Ryder TRS's operations to the Company's
operations, the previously mentioned increase in car rental volume and the
increase in the cost of retail vehicle sales reflecting the new store
locations. Due to the timing of the acquisition, Ryder TRS's operating expenses
increased $74.4 million in the second quarter of 1999 and $180.4 million for
the six months ended June 30, 1999. Operating expense increases in car rental
for the quarter and year to date period have risen over the prior year periods,
in line with volume, as improvements in fleet utilization and other benefits
from the revenue management system have offset increased fleet holding costs.
The cost of retail vehicle sales increased $27.1 million in the second quarter
of 1999 to $151.7 million from $124.6 million in the second quarter of 1998.
For the six-month period ended June 30, 1999, these costs increased $90.3
million to $300.6 million from $210.3 million in 1999 and 1998, respectively.
These increases are reflective of the car sales revenue growth with the new car
dealership acquisitions and new locations opened by the Company. Selling
general and administrative expenses were reduced by $2.7 million, reflecting a
gain on sale of property recorded in the second quarter of 1999. Amortization
and non-vehicle depreciation expense increased $6.7 million in the second
quarter of 1999 to $18.3 million from $11.6 million in the second quarter of
1998. For the six-month period ended June 30, 1999, expenses in this category
increased $14.5 million to $35.3 million from $20.7 million at June 30, 1998.
This increase was largely due to intangibles, including goodwill, related to
the 1998 acquisitions.
Other expense, net. Other expense, net of interest income, increased $0.6
million in the second quarter of 1999 to $54.7 million from $54.1 million in
the second quarter of 1998 and increased $8.5 million to $102.8 in the first
six months of 1999 compared to $94.4 million for the same period in 1998. These
increases were largely due to the financing of fleet and other borrowings
related to the acquisition of Ryder TRS and the volume and fleet level
increases and changes to the Company's capital structure concurrent with the
acquisition of Ryder TRS.
Provision for income taxes. The overall year to date tax provision
reflects the expected full year effective rate of 49% which is higher than the
statutory rate due to the effects of non-deductible intangible amortization and
the impact of state and local income taxes net of the federal benefit. Also
impacting the rate is the effect of the distributions on trust preferred
securities shown below the provision at its gross amount while the tax benefit
is included in the provision.
Distributions on trust preferred securities. The distributions on trust
preferred securities of $4.8 million and $9.4 million for the three- and
six-month periods ended June 30, 1999, represent dividend payments to holders
of these Company
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<PAGE> 13
obligated mandatorily redeemable securities issued by a subsidiary of Budget
Group, Inc. These distributions are reflected as a minority interest under the
above-mentioned caption and were issued in June 1998.
Recent Revenue Trends
The Company instituted a rate increase for one way rentals at Ryder TRS at
the start of the second quarter 1999 of 9% to compensate for declining rates.
However, due to competitive pressure, Ryder TRS abandoned this rate hike and
experienced a 6.5% decline in pricing from 1998 levels during the second
quarter of 1999. In addition, transactions were down 4% for the second quarter
of 1999 compared to the prior year period due to the competitive pricing
environment and delays in the production and delivery of fleet. As a result of
the delays, fleet levels for the third and fourth quarters are expected to
continue to be below target levels. The negative pricing trends and lower fleet
and transaction levels are expected to continue into the third and fourth
quarters and may negatively impact operating results.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's operations have been funded by cash provided
from operating activities and by financing provided by asset-backed medium term
notes ("MTN's"), banks, automobile manufacturers' captive finance companies, and
leasing companies. The Company's primary use of cash is for the acquisition of
new vehicles for the rental fleet. The Company's existing indebtedness at June
30, 1999 has interest rates ranging from 2.95% to 11.20% and the material terms
of the financing facilities are described below. The Company intends to fund its
operations and debt maturities 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 equity and/or debt securities which may include a substantial
portion of unsecured indebtedness.
Analysis of Cash Flows
Net cash provided by operating activities increased 23.5% to $318.7
million during the six months ended June 30, 1999 from $258.0 million during
the six-month period ended June 30, 1998. The improvement is largely due to the
decrease in net losses, while charges resulting from non-cash items and
operating assets and liabilities largely offset each other.
Net cash used in investing activities is primarily attributable 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 $1,501.7
million and $1,241.8 million during the first six months of 1999 and 1998,
respectively. Cash paid to suppliers of revenue earning vehicles was $2,576.8
million and $2,077.0 million during the first six months of 1999 and 1998,
respectively. Payment for acquisitions, net of cash acquired, amounted to $1.0
million and $149.4 million during the first six months of 1999 and 1998,
respectively. Capital expenditures, largely for new rental locations,
improvement in service levels and to upgrade computer hardware and software
were $40.2 million and $65.1 million for the first six months of 1999 and 1998,
respectively. We anticipate that the capital expenditures for 1999 will be
approximately $85 million.
Net cash provided by financing activities for the six-month period ended
June 30, 1999 decreased to a net use of $543.2 million from $909.4 million
during the six-
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<PAGE> 14
month period ended June 30, 1998. This was due primarily to the incremental use
of restricted cash (investing activity) of $355.6 million, rather than debt, to
finance the acquisition of revenue earning vehicles.
Debt Facilities - General
The Company borrows money directly and through its special purpose fleet
financing subsidiaries, Team Fleet Financing Corporation ("TFFC") and Budget
Fleet Financing Corporation ("BFFC"). Subsidiaries also have various working
capital facilities in place to finance operating activities. At June 30, 1999,
the Company had $4,179.5 million of indebtedness outstanding, $3,714.4 million
of which represented secured fleet financing and $465.1 million of which
represented non-vehicle indebtedness. At June 30, 1999, the Company had $614.4
million of availability under various fleet financing facilities.
Recent Debt Placements and Retirements
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 $300.0 million secured
revolving credit facility to increase such facility to $550.0 million, (ii) the
conversion of $80.0 million of convertible subordinated notes to Class A common
stock, (iii) the redemption of $165.0 million of guaranteed senior notes, (iv)
the issuance, by a subsidiary of the Company, of 6,000,000 shares of trust
preferred securities which raised approximately $290.3 million, net of related
fees, (v) the private placement of $1.1 billion of notes issued in conjunction
with the Ryder TRS acquisition (the "TFFC-98 notes"), (vi) the redemption of
$175.0 million of Ryder TRS's outstanding 10% senior subordinated notes and
(vii) the repayment of approximately $340.0 million of Ryder TRS's outstanding
commercial paper. The redemptions (early extinguishments) resulted in charges
totaling $45.3 million, after income tax benefits, and the conversion premium to
holders of the convertible subordinated notes resulted in charges of $9.5
million. See Note 2 to the Company's unaudited consolidated financial statements
herein.
In April 1999, the Company issued unsecured senior notes with an aggregate
principal amount of $400.0 million bearing interest at 9.125% due in 2006 (the
"Notes"). The net proceeds from this transaction were primarily used to repay
the outstanding indebtedness under maturing medium-term notes used to finance
revenue earning vehicles and certain other secured indebtedness. Pending the
repayment of the maturing medium-term notes, the Company temporarily reduced
amounts outstanding under its commercial paper facilities. The indenture
governing the Notes contains certain covenants which, among other things,
restrict the Company from incurring certain additional indebtedness, paying
dividends or redeeming or repurchasing its capital stock, consolidating,
merging or transferring assets and engaging in sale/leaseback transactions. In
addition, the Company has filed a registration statement enabling holders of
the Notes to exchange the Notes for publicly registered notes with identical
terms. In June 1999, the Company exchanged all of the unregistered initial
Notes for registered Notes with identical terms.
In June 1999, the Company issued MTN's with a principal amount of $950.0
million bearing interest at rates ranging from 5.33% to 7.85% at June 30, 1999
("TFFC-99 notes"). These notes have maturity dates from 2002 to 2005.
Monthly maturities of $16.7 million on the $105.0 million notes issued in
August 1994 ("TFFC-94 notes") commenced in June 1999, with the last payment due
in November 1999. Monthly maturities of $83.3 million on the $500.0 million
notes assumed in the BRACC acquisition ("BFFC-94A notes") commenced in April
1999, with the last payment due in September 1999. These maturities are largely
being
14
<PAGE> 15
funded through proceeds received from the issuance of the Notes and the TFFC-99
notes.
Fleet Financing Facilities
At June 30, 1999, the Company had borrowed $3.1 billion under asset-backed
MTN's and $309.9 million under a commercial paper ("CP") facility (collectively
"Fleet notes"). The MTN's are comprised of the TFFC-94 notes, notes issued in
December 1996 ("TFFC-96 notes"), notes issued in April 1997 ("TFFC-97 notes"),
BFFC-94A notes, the TFFC-98 notes issued in conjunction with the acquisition of
Ryder TRS and the TFFC-99 notes issued in June 1999. The Fleet notes are
utilized largely to finance vehicles eligible for certain manufacturers' vehicle
repurchase programs and other allowable cars and trucks. Proceeds from the Fleet
notes that are temporarily unutilized for vehicle financing are maintained in
restricted cash accounts with the trustees. The Fleet notes are collateralized
by the secured vehicles, restricted cash and accounts receivable due from the
sale of vehicles. Interest rates on the Fleet notes at June 30, 1999, ranged
from 4.88% to 7.85%.
The Company's other vehicle obligations consist of outstanding lines of
credit to purchase rental fleet and retail car sales inventory. Borrowings
under collateralized available lines of credit at June 1999 consist of $267.0
million for rental vehicles and $72.5 million for retail car sales inventory
with maturity dates through May 2002. 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 that range from 2.95% to 11.20% at June 30, 1999.
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.
Medium Term Notes (MTN's)
The $1.1 billion TFFC-98 notes were entered into concurrently with the
acquisition of Ryder TRS, require monthly interest payments and bear interest
at fixed rates ranging from 6.07% to 6.84%. The TFFC-98 notes mature from 2001
to 2005. Proceeds from the notes were used to refinance Ryder TRS's commercial
paper and to finance certain BRACC vehicles.
The $500.0 million TFFC-97 notes and the $900.0 million CP facility were
entered into concurrently with the BRACC acquisition. As of June 30, 1999, the
CP debt of $309.9 million and had various interest rates, which ranged between
4.88% and 5.09%. The TFFC-97 note facility requires monthly interest payments
at an annual rate ranging from 7.35% to 7.80% and maturities from October 2001
to September 2002.
The TFFC-94 notes and TFFC-96 notes totaled $264.9 million with interest
rates ranging from 5.75% to 7.10% at June 30, 1999. Monthly maturities on the
TFFC-94 notes commenced in June 1999, with the last payment due in November
1999, while subordinated TFFC-94 notes of $5.7 million are due in December
1999. These maturities will be funded through proceeds received from the Notes
and the TFFC-99 notes.
The Company has continued to utilize borrowings under the BFFC-94A notes
to fund its fleet. At June 30,1999 the BFFC-94A notes consist of $250.0 million
of senior notes requiring monthly interest payments at LIBOR plus 0.50% (5.56%
at June 30, 1999). Monthly maturities of $83.3 million commenced in April 1999,
with the last payment due in September 1999. These maturities are being funded
through proceeds received from the issuance of the Notes and the TFFC-99 notes.
15
<PAGE> 16
The TFFC-99 notes issued in June 1999 consist of $950.0 million with rates
ranging from LIBOR plus 0.24% (or 6.70%) to 7.85% and have maturity dates from
2002 to 2005. The Company is utilizing these notes to offset the reduction of
commercial paper, purchase additional fleet, and fund maturities of existing
MTN's. These notes were issued in three different series. TFFC 99-2 has a
principal of $400.0 million bearing a floating interest rate ranging from LIBOR
plus 0.24% to LIBOR plus 1.15% and has a maturity date of June 2001. TFFC 99-3
has a principal amount of $350.0 million bearing fixed interest rates from
6.70% to 7.60% with a maturity date of June 2002. TFFC 99-4 has a principal
amount of $200.0 million with fixed interest rates of 6.90% to 7.85% and has a
maturity date of June 2004.
Trust Preferred Securities
In June 1998, the Company issued $300.0 million of trust preferred
securities and received approximately $291.0 million in net proceeds. These
funds were used to redeem the guaranteed senior notes and to partially fund the
redemption of Ryder TRS's 10% senior subordinated notes, which occurred in July
1998. The trust preferred securities are subject to mandatory redemption upon
the redemption of the underlying debentures due on June 15, 2028. The Company
has the right to defer interest payments due on the debentures for up to 20
consecutive quarters, which will also cause a deferral of distributions under
the trust preferred securities.
Working Capital Facility
Concurrent with the acquisition of Ryder TRS, the Company entered into an
amended and restated secured credit facility to increase its size from $300.0
million to $550.0 million. This facility requires monthly interest payments on
the outstanding balance at a rate based on LIBOR plus 2.25% or prime plus 1.25%
(7.16% at June 30, 1999) and expires in 2003. There is no outstanding balance
on this facility at June 30, 1999. The facility is secured primarily by cash,
accounts receivable and vehicles and is subject to 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
June 30, 1999, the Company had $448.1 million in letters of credit outstanding
resulting in availability under this facility of $101.9 million.
The credit facility was amended in the second quarter of 1999 to, among
other things, modify certain financial covenants and permit the issuance of
additional unsecured term notes to fund the maturities of MTN's.
CHANGE IN FINANCIAL CONDITION
Total assets increased $547.3 million from $5,134.1 million at December
31, 1998 to $5,681.4 million at June 30, 1999. This increase was due primarily
to an increase in revenue earning vehicles, net of $738.9 million, offset by a
decrease in restricted cash of $188.2 million to fund the increase in the
vehicles.
Total liabilities increased by $552.7 million from $4,192.3 million at
December 31, 1998 to $4,745.1 million at June 30, 1999. This increase, largely
notes payable of $544.4 million, resulted primarily from the need to finance an
increase in revenue earning vehicles.
RESTRUCTURING
The Company recorded a restructuring charge of approximately $14.9 million
in December 1998. This amount related primarily to closing of vehicle rental
and car
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<PAGE> 17
sales locations and centralization of certain finance and administration
functions of the Company. At June 30, 1999, approximately 70% of the employees
affected have been terminated and the Company has accruals remaining related to
the restructuring of $8.7 million. During the six-month period ended June 30,
1999 approximately $4.1 million has been paid or utilized and accrual
reductions of approximately $0.1 million have been recorded.
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, revenue increases in the spring
and summer months due to the overall increase in business and leisure travel
and moving activity 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. As a result of these patterns, for vehicle rental,
the first quarter of each year is typically the weakest and the third quarter
is typically the strongest. The retail vehicle sales business is also subject
to seasonal effects, with lower sales during the winter months.
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 1998, the Company recognized approximately $2.8 million in expenses
to modify existing computer systems and applications and estimates that an
aggregate of approximately $6.5 million will be incurred in 1999 specifically
for Y2K modification. Approximately $1.0 million was spent in 1999 through June
30. 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 is using both internal and external resources and
expects to complete most major modification efforts by September 30 with some
projects extending into the fourth quarter of 1999. The remediation of the
reservation system and BRACC's rental management system is substantially
complete.
The Company has recently decided to suspend further development on its new
Ryder TRS truck rental management system and to remediate its current system
due to the unlikelihood of completing a roll out of a new system to all dealers
and owned locations by year-end. The incremental cost of this remediation
effort is expected to
17
<PAGE> 18
be approximately $2 million. This project is expected to be completed in late
1999. In addition, implementation of new finance and operating systems in
France is expected to continue into late 1999. These efforts have not
significantly hampered the Company's ongoing system development or system
upgrade activities to date, however, resources will continue to be diverted to
Y2K related efforts in the event that modifications fall further behind
schedule. The Company expects to complete all Y2K related efforts no later than
year-end.
The Company is assessing the impact of the Y2K Issue on the ability of its
significant suppliers to maintain adequate service levels. Responses to Company
inquiries of suppliers' preparedness for Y2K have been received from about
one-half of the significant suppliers identified by the Company with all
respondents indicating expected readiness for Y2K. The most critical suppliers
are in the vehicle manufacturing, telecommunications, fuel supply and
banking/financing industries. A failure on the part of these suppliers or their
products could cause significant disruption in operations and therefore
materially impact the Company's operating results and financial condition. The
Company believes that the computer technology embedded in the vehicles it has
in fleet, or expects to purchase, is Y2K ready and expects to complete the
entire assessment by September 30, 1999.
There can be no assurance that the critical third-party suppliers upon
which the Company relies will be successful in taking corrective action in a
timely manner. The Company is developing contingency plans with respect to
certain areas, which are intended to allow the Company to continue to operate
in the event of a Y2K failure. The contingency plans will include performing
certain processes manually, repairing affected systems and changing suppliers
as necessary. These contingency plans may not be successful in avoiding the
disruption of service particularly in the reservation and vehicle rental
processes.
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 1998, the Company recognized approximately $0.9 million in expenses
related to remediation efforts and estimates that an aggregate of approximately
$3.2 million will be incurred in 1999 and 2000. Approximately $0.5 million was
spent in 1999 through June 30. 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.
FORWARD LOOKING STATEMENTS
This Form 10-Q and other statements issued or made from time to time by
Budget Group, Inc. or its representatives contain statements which may
constitute "forward looking statements" under the Private Securities Litigation
Act of 1995. Those statements include statements regarding the intent, belief
or current expectations of Budget Group, Inc. and members of its management
team, as well as the assumptions on
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<PAGE> 19
which such statements are based. Prospective investors are cautioned that any
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties and that actual results may differ materially
from those contemplated by such forward-looking statements. Important factors
currently known to management that could cause actual results to differ
materially from those in forward-looking statements are set forth in Item 7 of
the Company's Annual Report on Form 10-K for the year ended December 31, 1998,
and that information is hereby incorporated by reference in this Form 10-Q. The
Company undertakes no obligation to update or revise forward-looking statements
to reflect changed assumptions, the occurrence of unanticipated events or
changes to future operating results over time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk is primarily due to floating rate
interest associated with fleet debt. The Company manages interest rates through
use of a combination of fixed and floating rate debt and interest hedging
instruments. No significant changes have occurred in the Company's capital
structure or market risk profile during the period ended June 30, 1999. See the
Company's disclosures regarding market risk as of December 31, 1998 included
under Item 7A of the Company's Form 10-K.
19
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not applicable.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1999 Annual Meeting of Stockholders was held on April 28, 1999 in
Daytona Beach, Florida for the following purposes:
1. The election of two directors to the Company's Board of Directors
to serve three year terms.
2. To amend the Company's Certificate of Incorporation to fix the size
of the Board of Directors to not less than seven (7) nor more than
twelve (12) members.
3. Ratification of the appointment of Arthur Andersen LLP as the
Company's independent accountants for fiscal 1999.
Proxies for the meeting were solicited pursuant to Section 14(a) of
the Securities Exchange Act of 1934 and there was no solicitation in
opposition to management solicitations.
All of the management's nominees for directors as listed in the proxy
statement were elected with the following votes:
<TABLE>
<CAPTION>
DIRECTOR NOMINEE VOTES FOR VOTES WITHHELD
---------- --------------
<S> <C> <C>
Ronald D. Agronin ............................ 43,757,044 1,057,062
John P. Kennedy .............................. 43,765,953 1,048,153
</TABLE>
Additional directors continuing in office include: Sanford Miller,
James F. Calvano, Martin P. Gregor, Jeffery D. Congdon, Stephen L.
Weber and F. Perkin Hixon, Jr.
The vote to amend the Company's Certificate of Incorporation to fix
the size of the Board of Directors to not less than seven (7) nor more
than twelve (12) members was as follows:
<TABLE>
<S> <C>
Votes For ...................................... 38,401,009
Votes Against .................................. 498,082
Votes Abstained ................................ 1,266,415
</TABLE>
The vote of the appointment of Arthur Andersen LLP as the Company's
independent accountants for fiscal 1999 was as follows:
<TABLE>
<S> <C>
Votes For ...................................... 44,597,118
Votes Against .................................. 190,770
Votes Abstained ................................ 26,218
</TABLE>
20
<PAGE> 21
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 3.1 Second Restated Certificate of Incorporation.
Exhibit 27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
None.
21
<PAGE> 22
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BUDGET GROUP, INC.
------------------
(Registrant)
Dated: August 16, 1999 By: /s/ Michael B. Clauer
----------------------------------
Michael B. Clauer
Executive Vice President
Chief Financial Officer
Dated: August 16, 1999 By: /s/ Thomas L. Kram
----------------------------------
Thomas L. Kram
Vice President, Controller
(Principal Accounting Officer)
22
<PAGE> 1
EXHIBIT 3.1
SECOND RESTATED
CERTIFICATE OF INCORPORATION
OF
BUDGET GROUP, INC.
Budget Group, Inc., a corporation organized and existing under laws of
the State of Delaware (the "Corporation"), does hereby certify that (i) the
name of the Corporation is Budget Group, Inc., (ii) the Corporation was
originally incorporated under the name Team Holdings, Inc., and the original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of Delaware on December 31, 1992, (iii) the original Certificate of
Incorporation was amended and restated in its entirety and filed with the
Secretary of State of Delaware on April 21, 1994 and was amended on June 24,
1996, April 28, 1997, April 23, 1998 and June 2, 1998 (the original Certificate
of Incorporation as so amended or restated being referred to herein as the
"Certificate of Incorporation"), (iv) the Certificate of Incorporation was
restated in its entirety pursuant to Section 245 of the Delaware General
Corporation Law and the Restated Certificate of Incorporation was filed with
the Secretary of State of Delaware on December 30, 1998 (the original
Certificate of Incorporation as so restated being referred to herein as the
"Restated Certificate of Incorporation"), (v) the Restated Certificate of
Incorporation was amended on May 4, 1999, and (vi) this Second Restated
Certificate of Incorporation (A) restates and integrates and does not further
amend the provisions of the Restated Certificate of Incorporation of the
Corporation as theretofore amended or supplemented, (B) does not create a
discrepancy between its provisions and the provisions of the Restated
Certificate of Incorporation of the Corporation as theretofore amended or
supplemented, and (C) has been duly adopted by the Board of Directors without a
vote of stockholders in accordance with Section 245 of the Delaware General
Corporation Law.
FIRST: Name. The name of the corporation is Budget Group, Inc.
SECOND: Registered Office and Agent. The address of the registered
office of the Corporation in the State of Delaware is 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801. The name of the registered agent
at such address is The Corporation Trust Company.
THIRD: Purposes. The purposes for which the Corporation is formed are
to engage in any lawful act or activity for which corporations may be organized
under the Delaware General Corporation Law and to possess and exercise all of
the powers and privileges granted by such law and any other law of Delaware.
FOURTH: A. Authorized Capital
The Corporation is authorized to issue 73,000,000 shares of
capital stock, consisting of 72,750,000 shares of common stock, par value $.01
per share (the "Common Stock"), and 250,000 shares of preferred stock, par
value $.01 per share (the "Preferred Stock").
<PAGE> 2
Of the shares of Common Stock, 70,000,000 shares shall be designated "Budget
Class A Common Stock" and 2,750,000 shares shall be designated "Budget Class B
Common Stock." The rights, preferences, privileges and restrictions granted and
imposed upon the Preferred Stock, Budget Class A Common Stock and Budget Class
B Common Stock are set out hereinbelow.
B. Preferred Stock
The Preferred Stock may be issued from time to time in one or
more series with such designations, preferences, and relative participating,
optional or other special rights and qualifications, limitations or
restrictions adopted by the Board of Directors providing for the issuance of
such Preferred Stock or series thereof; and the Board of Directors is hereby
expressly granted the authority to fix by resolution or resolutions such
designations and powers, preferences and rights and such qualifications,
limitations or restrictions which are permitted by Section 151 of the General
Corporation Law of Delaware, as amended from time to time, in respect of any
class or classes of stock or any series of any class of stock of the
Corporation that may be desired, including, but not by way of limitation, the
number, distinctive name and serial designation of such class or series; any
dividends payable and the rate, time for and priority of payment thereof;
whether such dividends shall be cumulative or not; any participating or other
special rights with respect to the payment of dividends; any conversion,
exchange, purchase or other privilege to acquire shares of any other class or
series of the Preferred Stock or Common Stock of the Corporation; any voting
power; and any redemption and liquidation price or preference.
C. Class A Common Stock.
The shares of Class A Common Stock and shares of Class B
Common Stock shall be identical in all respects and shall have equal rights and
privileges except as expressly set forth in this paragraph C and in paragraph D
of this Article FOURTH. Upon dissolution of the Corporation, shares of Class A
Common Stock and Class B Common Stock are entitled to share ratably in the
assets thereof that may be available for distribution after satisfaction of
creditors and the payment of any liquidation preference of any outstanding
shares of Preferred Stock.
1. Dividends.
(a) Subject to the rights of the holders of the Preferred
Stock, if any, such dividends or distributions as may be determined by the
Board of Directors of the Corporation from time to time may be declared and
paid or made upon shares of Class A Common Stock out of any source at the time
lawfully available for the payment of dividends; provided that (subject to
subparagraphs (b) and (c) below of this paragraph C.1.) identical dividends or
distributions are declared and paid concurrently on shares of Class B Common
Stock. If dividends or distributions are declared and paid upon shares of Class
B Common Stock (subject to subparagraphs (b) and (c) below of this paragraph
C.1.), identical dividends or distributions shall be declared and paid
concurrently on shares of Class A Common Stock.
-2-
<PAGE> 3
(b) No dividend may be declared and paid in shares of Class
A Common Stock unless (i) the dividend is payable only to holders of shares of
Class A Common Stock and (ii) a dividend payable to holders of shares of Class
B Common Stock is declared and paid concurrently in the same number of shares
of Class B Common Stock per outstanding share of Class B Common Stock as the
number of shares of Class A Common Stock declared and paid per outstanding
share of Class A Common Stock.
(c) No dividend may be declared and paid in Class B Common
Stock unless (i) the dividend is payable only to holders of Class B Common
Stock and (ii) a dividend payable to holders of shares of Class A Common Stock
is declared and paid concurrently in the same number of shares of Class A
Common Stock per outstanding share of Class A Common Stock as the number of
shares of Class B Common Stock declared and paid per outstanding share of Class
B Common Stock.
2. Stock Combinations and Subdivisions. Shares of Class A
Common Stock shall not be combined or subdivided unless at the same time there
is a proportionate combination or subdivision of shares of Class B Common
Stock. If shares of Class B Common Stock are combined or subdivided, a
proportionate combination or subdivision of shares of Class A Common Stock
shall be made at the same time.
3. Voting. Except as may otherwise be required by law, the
holders of shares of Class A Common Stock shall vote together with the holders
of Class B Common Stock as a single class, provided that the holders of Class A
Common Stock will have one (1) vote per share and the holders of Class B Common
Stock shall have ten (10) votes per share.
D. Class B Common Stock.
1. Dividends and Distributions. Subject to the provisions of
paragraph C.1. of this Article FOURTH, dividends and distributions may be
declared and paid or made upon shares of Class B Common Stock as may be
permitted by applicable law.
2. Stock Combinations and Subdivisions. Subject to the
provisions of paragraph C.2. of this Article FOURTH, shares of Class B Common
Stock may be combined or subdivided in such manner as may be permitted by
applicable law.
3. Voting. Subject to the provisions of paragraph C.3. of
this Article FOURTH, shares of Class B Common Stock shall have ten (10) votes
per share on all matters that may be submitted to a vote or consent of the
shareholders.
-3-
<PAGE> 4
4. Conversion.
(a) Each holder of record of shares of Class B Common Stock
may, in such holder's sole discretion, and at such holder's option, convert any
whole number or all of such holder's shares of Class B Common Stock into fully
paid and nonassessable shares of Class A Common Stock at the rate of one (1)
share of Class A Common Stock for each share of Class B Common Stock
surrendered for conversion. Any such conversion may be effected by any holder
of Class B Common Stock by surrendering such holder's certificate or
certificates for the shares of Class B Common Stock to be converted, duly
endorsed, at the office of the Corporation or any transfer agent for Class B
Common Stock, together with a written notice to the Corporation at such office
that such holder elects to convert all or a specified number of shares of Class
B Common Stock and stating the name or names in which such holder desires the
certificate or certificates for such shares of Class A Common Stock to be
issued. Promptly thereafter, unless otherwise prohibited by law, the
Corporation shall issue and deliver to such holder or such holder's nominee or
nominees, a certificate or certificates for the number of shares of Class A
Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made at the close of business on the
day of such surrender and the person or persons entitled to receive shares of
Class A Common Stock issuable on such conversion shall be treated for all
purposes as the record holder or holders of such shares of Class A Common Stock
on that date.
(b) Each share of Class B Common Stock shall automatically
be converted into one share of Class A Common Stock in the event that the
beneficial or record ownership of such share of Class B Common Stock shall be
transferred (including, without limitation, by way of gift, settlement, will or
intestacy) to any person or entity that is not then a record or beneficial
holder of shares of Class B Common Stock. A pledge of shares of Class B Common
Stock as security for an obligation of a holder of such shares of Class B
Common Stock shall not be considered a transfer for purposes of this paragraph
D.4(b), unless and until beneficial ownership of such shares is transferred to
the pledgeholder. The conversion into Class A Common Stock shall be deemed to
have occurred (whether or not certificates representing such shares are
surrendered) as of the close of business on the date of transfer, and the
person or persons entitled to receive shares of Class A Common Stock issuable
on such conversion shall be treated for all purposes as the record holder or
holders of such shares of Class A Common Stock on that date.
(c) Before any shares of Class A Common Stock shall be
delivered upon conversion, the holder of shares of Class B Common Stock whose
shares have been converted into shares of Class A Common Stock shall deliver
the certificate(s) representing such shares to the Corporation or its duly
authorized agent (or if such certificates have been lost, stolen or destroyed,
such holder shall execute an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
conversion), specifying the place where the Common Stock issued in conversion
thereof shall be sent. The endorsement of the share certificate shall be in
form satisfactory to the Corporation or such agent, as the case may be.
-4-
<PAGE> 5
(d) The number of shares of Class A Common Stock into which
the shares of Class B Common Stock may be converted shall be subject to
adjustment from time to time in the event of any capital reorganization,
reclassification of stock of the Corporation, consolidation or merger of the
Corporation with or into another corporation, or sale or conveyance of all or
substantially all of the assets of the Corporation to another corporation or
other entity or person. Each share of Class B Common Stock shall thereafter be
convertible into such kind and amount of securities or other assets, or both,
as are issuable or distributable in respect of each share of Class A Common
Stock. In any such case, appropriate adjustments shall be made by the Board of
Directors of the Corporation in the application of the provisions herein set
forth with respect to the rights and interests thereafter of the holders of
Class B Common Stock to the end that the provisions set forth herein shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
securities or other assets thereafter deliverable on conversion of shares of
Class B Common Stock.
(e) The Corporation shall, at all times, reserve and keep
available out of the authorized and unissued shares of Class A Common Stock,
solely for the purpose of effecting the conversion of the outstanding shares of
Class B Common Stock, such number of shares of Class A Common Stock as shall
from time to time be sufficient to effect conversion of all outstanding shares
of Class B Common Stock and if, at any time, the number of authorized and
unissued shares of Class A Common Stock shall not be sufficient to effect
conversion of the then outstanding shares of Class B Common Stock, the
Corporation shall take such corporate action as may be necessary to increase
the number of authorized and unissued shares of Class A Common Stock to such
number as shall be sufficient for such purposes.
(f) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of shares of
Class A Common Stock on conversion of shares of Class B Common Stock pursuant
hereto. The Corporation shall not, however, be required to pay any tax which
may be payable in respect of the issue of any shares of Class A Common Stock in
a name other than that in which the shares of Class B Common Stock so converted
was registered, and no such issue or delivery shall be made unless and until
the person requesting such issue has paid to the Corporation the amount of any
such tax, or has established, to the satisfaction of the Corporation, that such
tax has been paid.
(g) If any shares of capital stock to be reserved for the
purpose of conversion of shares of Class B Common Stock require registration or
listing with, or approval of, or inclusion in any governmental authority, stock
exchange or other regulatory body, or any automated quotation system of a
national securities association, under any federal or state law or regulation
or otherwise, before such shares may be validly issued or delivered upon
conversion, the Corporation will in good faith and as expeditiously as possible
endeavor to secure such registration, listing, approval or inclusion, as the
case may be.
-5-
<PAGE> 6
(h) All shares of Class A Common Stock which may be issued
upon conversion of shares of Class B Common Stock will upon issuance by the
Corporation be validly issued, fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issuance thereof.
(i) All certificates representing shares of Class B Common
Stock surrendered for conversion shall be appropriately canceled on the books
of the Corporation, and the number of authorized shares of Class B Common Stock
shall be reduced by the number of shares so converted.
(j) In case the Corporation shall take a record of the
holders of its shares of Class A Common Stock for the purpose of:
(1) entitling them to receive a dividend, or any other
distribution, payable otherwise than in cash; or
(2) entitling them to receive rights to acquire any
security issued by the Corporation; or
(3) any proposed reclassification, reorganization,
consolidation, merger, conveyance or voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, and in any such case, the Corporation shall cause to be mailed to the
holders of record of the outstanding shares of Class B Common Stock at least
ten (10) days prior to the date hereinafter specified, a notice stating the
date on which (x) a record is to be taken for the purpose of such dividend,
distribution or rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up is to
take place and the day, if any is to be fixed, as of which record holders of
shares of Class A Common Stock shall be entitled to exchange their shares of
Class A Common Stock for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(k) So long as any shares of Class B Common Stock are
outstanding, the Corporation shall not, without first obtaining the approval by
vote or written consent, in the manner provided by law, of the holders of (i)
at least a majority of the total number of shares of Class A Common Stock
outstanding, voting separately as a class, and (ii) at least sixty percent
(60%) of the total number of shares of Class B Common Stock outstanding, voting
separately as a class, (A) alter or change the rights or privileges of shares
of the Common Stock; (B) amend any provision of Section C or this Section D of
this Article FOURTH; or (C) effect any reclassification or recapitalization of
the Corporation's outstanding Common Stock.
-6-
<PAGE> 7
FIFTH: Additional Powers of Board of Directors. The Board of
Directors shall have power, without shareholder action, to make by-laws for the
Corporation and to amend, alter or repeal any by-laws.
SIXTH: Voting by Ballot. Elections of Directors need not be by ballot
unless the by-laws of the Corporation provide otherwise.
SEVENTH: Limited Liability of Directors. The directors of the
Corporation shall be entitled to the full benefits of all limitations on the
liability of directors generally that are now or hereafter become available
under the Delaware General Corporation Law. Without limiting the generality of
the foregoing, no director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability: (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for any acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. Any repeal or modification of this Article SEVENTH
shall be prospective only, and shall not affect, to the detriment of any
director, any limitation on the personal liability of a director of the
Corporation existing at the time of such repeal or modification.
EIGHTH: Classified Board of Directors. The number of directors of the
Corporation shall not be less than seven (7) nor more than twelve (12), with
the exact number of directors to be fixed from time to time by resolution of
the Board of Directors of the Corporation. The Board of Directors shall have
the exclusive right to fix the number of directors. The directors shall be
divided into three classes, designated Class I, Class II and Class III. Each
Class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors. The term of the
initial Class I Directors shall terminate on the date of the 2001 Annual
Meeting of Stockholders; the term of the initial Class II Directors shall
terminate on the date of the 2000 Annual Meeting of Stockholders; and the term
of the initial Class III Directors shall terminate on the date of the 1999
Annual Meeting of Stockholders. At each Annual Meeting of Stockholders
beginning in 1999, successors to the Class of directors whose term expires at
that Annual Meeting of Stockholders shall be elected for a three-year term. If
the number of directors is changed, any increase or decrease in directorship
shall be apportioned among the Classes so as to maintain the number of
directors in each Class as nearly equal as possible, and any additional
directors of any Class elected to fill a vacancy resulting from an increase in
such class shall hold office only until the next election of directors of that
Class by the stockholders of the Corporation, but in no case will a decrease in
the number of directors shorten the term of any incumbent director. Directors
shall hold office until the Annual Meeting of Stockholders for the year in
which their terms expire and until their successors shall be duly elected and
qualified, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
-7-
<PAGE> 8
Notwithstanding the foregoing, whenever the holders of any one or more classes
or series of Preferred Stock issued by the corporation shall have the right,
voting separately by class or series, to elect directors at an Annual or
Special Meeting of Stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation, or the resolution or resolutions
adopted by the board of directors creating such class or series, as the case
may be, applicable thereto, and such directors so elected shall not be divided
into classes pursuant to this Article EIGHTH unless expressly provided by such
terms.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the Corporation has caused this Second Restated
Certificate of Incorporation to be executed on its behalf by the undersigned
officer, this 24th day of June, 1999, hereby declaring and certifying that this
is the act and deed of the Corporation and that the facts stated herein are
true.
BUDGET GROUP, INC.
By: /s/ Robert L. Aprati
---------------------------------
Robert L. Aprati, Executive Vice
President, General Counsel and
Secretary
[CORPORATE SEAL]
STATE OF Illinois
COUNTY OF DuPage
I, Gerri S. Copper, a Notary Public, do hereby certify that on the 24th
day of June, 1999, personally appeared before me Robert L. Aprati, Executive
Vice President, General Counsel and Secretary, and, being first duly sworn by
me, acknowledged that he signed the foregoing document in the capacity therein
set forth and declared that the statements therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and
year before written.
/s/ Gerri S. Copper
---------------------------
Notary Public
[Notarial Seal]
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF BUDGET GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 308,534
<SECURITIES> 0
<RECEIVABLES> 382,879
<ALLOWANCES> 0<F1>
<INVENTORY> 3,671,401
<CURRENT-ASSETS> 4,362,814
<PP&E> 237,580
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 5,681,392
<CURRENT-LIABILITIES> 567,033
<BONDS> 4,179,522
291,309
0
<COMMON> 361
<OTHER-SE> 643,167
<TOTAL-LIABILITY-AND-EQUITY> 5,681,392
<SALES> 1,471,025
<TOTAL-REVENUES> 1,471,025
<CGS> 300,627
<TOTAL-COSTS> 1,071,558
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102,820
<INCOME-PRETAX> (3,980)
<INCOME-TAX> (6,569)
<INCOME-CONTINUING> (6,838)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,838)
<EPS-BASIC> 0.45
<EPS-DILUTED> 0.42
<FN>
<F1>RECEIVABLES ARE REPORTED NET OF ALLOWANCES FOR DOUBTFUL ACCOUNTS ON THE
BALANCE SHEET
<F2>PROPERTY, PLANT & EQUIPMENT IS REPORTED NET OF ACCUMULATED DEPRECIATION ON
THE BALANCE SHEET
</FN>
</TABLE>
