<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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 NUMBER 0-23962
BUDGET GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 59-3227576
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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 [ ]
37,182,153 shares of common stock were outstanding as of November 10, 1999,
comprised of 35,245,553 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 17.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998...................... 1
Consolidated Statements of Income for the Three and
Nine-Month Periods Ended September 30, 1999 and 1998
(unaudited)............................................ 2
Consolidated Statement of Changes in Stockholders' Equity
for the Nine-Month Period Ended September 30, 1999
(unaudited)............................................ 3
Consolidated Statements of Cash Flows for the Nine-Month
Periods Ended September 30, 1999 and 1998
(unaudited)............................................ 4
Notes to Unaudited Consolidated Financial Statements...... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 8
Item 3. Quantitative and Qualitative Disclosures about
Market Risk............................................... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................. 17
Item 2. Changes in Securities and Use of Proceeds.......... 17
Item 3. Default Upon Senior Securities..................... 17
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 17
Item 5. Other Information.................................. 17
Item 6. Exhibits and Reports on Form 8-K................... 17
Signature Page.............................................. 18
</TABLE>
i
<PAGE> 3
PART I -- FINANCIAL STATEMENTS
ITEM 1. CONSOLIDATED BALANCE SHEETS
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 49,536 $ 136,184
Restricted cash............................................. 15,996 421,467
Trade and vehicle receivables, net.......................... 399,006 425,183
Vehicle inventory........................................... 85,702 81,028
Revenue earning vehicles, net............................... 3,404,784 2,839,183
Property and equipment, net................................. 238,575 229,318
Prepaid expenses and other assets........................... 241,053 179,218
Intangibles, including goodwill, net........................ 858,199 822,490
---------- ----------
Total assets...................................... $5,292,851 $5,134,071
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable............................................... $3,721,163 $3,635,095
Accounts payable, accrued and other liabilities............. 577,349 517,107
Deferred income taxes....................................... 40,119 40,119
---------- ----------
Total liabilities................................. 4,338,631 4,192,321
COMPANY OBLIGATED MANDITORILY REDEEMABLE
SECURITIES OF SUBSIDIARY.................................... 291,385 291,160
---------- ----------
STOCKHOLDERS' EQUITY
Common stock................................................ 372 360
Additional paid-in capital.................................. 647,388 670,089
Foreign currency translation adjustment..................... (671) (5,169)
Retained earnings (deficit)................................. 17,759 (12,677)
Treasury stock.............................................. (2,013) (2,013)
---------- ----------
Total stockholders' equity........................ 662,835 650,590
---------- ----------
Total liabilities and stockholders' equity........ $5,292,851 $5,134,071
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
1
<PAGE> 4
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE-MONTH FOR THE NINE-MONTH
PERIODS ENDED PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUE:
Vehicle rental................................... $708,527 $644,666 $1,780,638 $1,434,762
Retail vehicle sales............................. 160,403 183,320 503,190 421,357
Royalty fees and other........................... 30,582 28,583 86,709 70,787
-------- -------- ---------- ----------
Total operating revenue.................. 899,512 856,569 2,370,537 1,926,906
-------- -------- ---------- ----------
OPERATING EXPENSES:
Direct vehicle and operating..................... 277,064 245,227 741,699 573,320
Depreciation -- vehicle.......................... 158,279 144,151 440,224 356,341
Cost of retail vehicle sales..................... 139,896 165,328 440,523 375,661
Selling, general and administrative.............. 160,851 127,970 450,568 329,465
Amortization and non-vehicle depreciation........ 17,446 16,189 52,706 36,929
Pooling expenses................................. -- -- -- 1,595
-------- -------- ---------- ----------
Total operating expense.................. 753,536 698,865 2,125,720 1,673,311
-------- -------- ---------- ----------
Operating income................................... 145,976 157,704 244,817 253,595
-------- -------- ---------- ----------
Other expense:
Vehicle interest, net.............................. 55,002 43,525 145,180 112,573
Other interest, net................................ 11,164 10,554 23,807 26,409
Debt extinguishment costs.......................... -- -- -- 9,454
-------- -------- ---------- ----------
Total other expense, net................. 66,166 54,079 168,987 148,436
INCOME BEFORE INCOME TAXES......................... 79,810 103,625 75,830 105,159
Provision for income taxes......................... 37,744 37,658 31,175 37,211
Distributions on trust preferred securities........ 4,792 4,691 14,219 5,342
-------- -------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM................... 37,274 61,276 30,436 62,606
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
(Net of income taxes of $26,602)................. -- -- -- (45,296)
-------- -------- ---------- ----------
NET INCOME......................................... $ 37,274 $ 61,276 $ 30,436 $ 17,310
======== ======== ========== ==========
NET INCOME PER SHARE
Basic: Income before extraordinary item.......... $ 1.01 $ 1.70 $ 0.84 $ 2.03
======== ======== ========== ==========
Extraordinary item.......................... -- -- -- $ (1.47)
======== ======== ========== ==========
Net income.................................. $ 1.01 $ 1.70 $ 0.84 $ 0.56
======== ======== ========== ==========
Diluted: Income before extraordinary item........ $ 0.86 $ 1.38 $ 0.84 $ 1.78
======== ======== ========== ==========
Extraordinary item.......................... -- -- -- $ (1.16)
======== ======== ========== ==========
Net income.................................. $ 0.86 $ 1.38 $ 0.84 $ 0.62
======== ======== ========== ==========
Weighted average number of shares outstanding
Basic............................................ 36,768 35,942 36,179 30,765
Diluted.......................................... 47,485 47,016 36,259 38,946
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE> 5
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY ACCUMULATED TOTAL
COMMON PAID-IN TRANSLATION EARNINGS 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 income............. -- -- -- 30,436 --
Foreign currency
translation.......... -- -- 4,498 -- --
Total comprehensive income....... 34,934
Net proceeds from stock
options........................ -- 7 -- -- -- 7
Shares issued in acquisition of
businesses..................... 1 1,017 -- -- -- 1,018
Make-whole payment............... 11 (23,943) -- -- -- (23,932)
Stock compensation............... -- 218 -- -- -- 218
---- -------- ------- -------- ------- --------
Balance at September 30, 1999.... $372 $647,388 $ (671) $ 17,759 $(2,013) $662,835
==== ======== ======= ======== ======= ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 6
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 30,436 $ 17,310
----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities
Extraordinary item.......................................... -- 71,898
Depreciation and amortization............................... 492,930 393,269
Stock compensation.......................................... 218 --
Deferred income taxes....................................... -- 7,779
Non-cash debt extinguishment costs.......................... -- 8,854
Changes in operating assets and liabilities, net of effects
from acquisitions Trade and vehicle receivables........... 26,177 20,472
Vehicle inventory......................................... (4,674) (15,041)
Prepaid expenses and other assets......................... (36,510) (55,272)
Accounts payable, accrued and other liabilities........... 60,242 (10,632)
----------- -----------
Total adjustments................................. 538,383 421,327
----------- -----------
Net cash provided by operating activities......... 568,819 438,637
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in restricted cash balance........................... 405,471 (77,229)
Proceeds from sale of revenue earning vehicles.............. 1,940,470 1,832,848
Purchases of revenue earning vehicles....................... (3,009,401) (2,584,297)
Proceeds from the sale of property and equipment............ 10,440 14,122
Purchases of property and equipment......................... (63,216) (74,879)
Payment for acquisitions, net of cash acquired.............. (1,018) (179,977)
----------- -----------
Net cash used in investing activities............. (717,254) (1,069,412)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in vehicle obligations......................... 404,708 813,638
Net decrease in commercial paper............................ (645,397) (99,193)
Proceeds from other notes payable........................... 403,352 2,726
Principal payments on other notes payable................... (76,595) (28,459)
Proceeds from issuance of mandatorily redeemable securities
of subsidiary, net........................................ -- 291,000
Make-whole payments......................................... (23,943) --
Proceeds from equity transactions, net...................... 7 1,664
Early redemption of notes payable........................... -- (393,634)
----------- -----------
Net cash provided by financing activities......... 62,132 587,742
----------- -----------
Effect of exchange rate changes on cash..................... (345) 90
----------- -----------
Net decrease in cash and cash equivalents................... (86,648) (42,943)
Cash and cash equivalents, beginning of period.............. 136,184 161,455
----------- -----------
Cash and cash equivalents, end of period.................... $ 49,536 $ 118,512
=========== ===========
</TABLE>
4
<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.
These consolidated financial statements should 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 nine-month
period ended September 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 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. 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.
5
<PAGE> 8
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 of 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>
NINE-MONTH PERIOD
ENDED
SEPTEMBER 30, 1998
------------------
<S> <C>
Operating revenue........................................... 2,193,730
Net income.................................................. 50,791
Earning per share
Basic..................................................... 1.42
Diluted................................................... 1.30
</TABLE>
The Company completed several small acquisitions of Budget Rent a Car
franchises and local market car rental companies through September 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 PAYMENTS
A make-whole payment is delivered if the price of the stock issued in a
purchase falls below a specified price during the measurement periods.
In April 1999, the Company paid cash of approximately $2.3 million related
to a make-whole payment for the purchase of Compact Rent a Car Limited,
consummated in April 1998.
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. 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 cash of $0.7 million related to a
make-whole payment for the purchase of United Leasing Inc., consummated in
August 1998.
In August 1999, the Company issued 229,529 shares of Class A common stock
with a value of $3.2 million in make-whole payments related to the Wooten Ford
dealership acquisition consummated in June 1998.
In August 1999, the Company issued 209,813 shares of Class A common stock
with a value of $2.2 million in make-whole payments related to the Carson
Chrysler dealership acquisition consummated in June 1998.
6
<PAGE> 9
4. EARNINGS PER SHARE
Basic earnings per share was calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share 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 Company intends to settle all upcoming make-whole payments
(see Note 3 to unaudited consolidated financial statements) in cash. Therefore,
the potential dilutive effect that would occur upon a settlement in stock has
not been reflected in earnings per share.
The following table reconciles the income before extraordinary items and
number of shares utilized in the earnings per share calculations.
<TABLE>
<CAPTION>
THREE-MONTH PERIODS NINE-MONTH PERIODS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income before extraordinary item.......................... $37,274 $61,276 $30,436 $62,606
Effect of interest, distributions, and loan fee
amortization on convertible securities -- net of income
taxes................................................... 3,586 3,586 -- 6,673
------- ------- ------- -------
Net income available to common stockholders after assumed
conversion of dilutive securities....................... $40,860 $64,862 $30,436 $69,279
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
(000'S) (000'S)
----------------- -----------------
<S> <C> <C> <C> <C>
Weighted average number of common shares used in basic
EPS..................................................... 36,768 35,942 36,179 30,765
Effect of dilutive securities:
Stock options........................................... -- 357 80 634
Convertible securities.................................. 10,717 10,717 -- 7,547
------- ------- ------- -------
Weighted average number of common shares and dilutive
potential common stock used in diluted EPS.............. 47,485 47,016 36,259 38,946
======= ======= ======= =======
</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 $13.0 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 September 30,
1999, all of the employees affected have been terminated and the Company has
accruals remaining related to the Restructuring of $7.1 million. During the
nine-month period ended September 30, 1999 approximately $5.1 million has been
paid or utilized and accrual reductions of approximately $0.8 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. Based on its current
limited use of derivatives, the Company expects no material impact on its
financial condition or results of operations upon adoption of SFAS No. 133.
7
<PAGE> 10
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 September 30, 1999 and 1998,
respectively, are:
<TABLE>
<CAPTION>
THREE-MONTH PERIODS NINE-MONTH PERIODS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -----------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue
Car Rental............................... $504,267 $443,159 $1,324,618 $1,160,761
Truck Rental and Sales................... 270,089 262,464 635,276 427,062
Retail Car Sales......................... 151,620 172,122 479,185 397,493
Eliminations............................. (26,464) (21,176) (68,542) (58,410)
-------- -------- ---------- ----------
Total revenue.................... $899,512 $856,569 $2,370,537 $1,926,906
======== ======== ========== ==========
Operating income(loss)
Car Rental............................... $ 93,035 $108,011 $ 174,943 $ 187,642
Truck Rental and Sales................... 54,717 56,851 85,004 84,864
Retail Car Sales......................... 691 (3,478) (1,662) (4,931)
Corporate Overhead....................... (2,467) (3,680) (13,468) (13,980)
-------- -------- ---------- ----------
Total operating income........... $145,976 $157,704 $ 244,817 $ 253,595
======== ======== ========== ==========
</TABLE>
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 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.
8
<PAGE> 11
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 third
quarter of 1999 decreased $24.0 million to $37.3 million compared with income of
$61.3 million in 1998. Earnings per share for the third quarter of 1999
decreased to $0.86 per diluted share from earnings of $1.38 per diluted share in
1998. This decrease was primarily due to a favorable impact in 1998 related to
the actuarial estimates of self-insured losses and a decrease in third party
funding of promotional programs. Income before extraordinary item decreased
$32.2 million for the first nine months of 1999 compared to income of $30.4
million from income of $62.6 million for the first nine months of 1998. This
reduction was primarily due to seasonal losses in the first five months of 1999
of Ryder TRS, the favorable impact in 1998 related to the actuarial estimates of
self-insured losses and a decrease in third party funding of promotional
programs.
Operating Revenues. Vehicle rental revenue increased $63.9 million, or
9.9%, in the third quarter of 1999 to $708.5 million from $644.7 million in the
third quarter of 1998. This increase was due primarily to a 7.8% volume growth
in BRACC North America car rental and increased rental revenue in Europe due to
volume increases and the acquisition of several vehicle rental operations.
Vehicle rental revenue increased $345.9 million to $1,780.6 million for the
first nine months of 1999 from $1,434.8 million for the same period in 1998.
This increase was largely due to the acquisition of Ryder TRS in June 1998,
which added a significant number of locations and vehicles to the Company's
operations and an 8.2% growth in BRACC North America car rental revenue. Revenue
from sales of vehicles decreased $22.9 million, or 12.5%, in the third quarter
of 1999 to $160.4 million from $183.3 million in the third quarter of 1998. This
decrease was due to four fewer car sales locations open at September 30, 1999
versus September 30, 1998. Such revenues for the first nine months of 1999
increased $81.8 million, or 19.4%, to $503.2 million from $421.4 million. This
increase was due to the additional revenue of $84.2 million associated with the
acquisition of three new car dealerships in June 1998, offset by the closing of
several retail car lots in early 1999. Royalty fees and other revenues increased
$2.0 million, or 7.0%, in the third quarter of 1999 to $30.6 million from $28.6
million in the third quarter of 1998 and increased $15.9 million for the nine
months ended September 30, 1999 to $86.7 million from $70.8 million for the
first nine 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 $54.7 million, or
7.8%, in the third quarter of 1999 to $753.5 million from $698.9 million in the
third quarter of 1998, generally reflecting the volume increases previously
mentioned. Total operating expenses increased $452.4 million to $2,125.7 million
from $1,673.3 million for the nine months ended September 30, 1999 and September
30, 1998, respectively. The increase for the nine months ended September 30,
1999 over the same period in 1998 was largely due to the addition of Ryder TRS
to the Company's operations, increases in car rental volume and the increase in
the cost of retail vehicle sales reflecting the new dealership locations. Due to
the timing of the acquisition, Ryder TRS's operating expenses increased $180.4
million for the nine months ended September 30, 1999. Direct vehicle and
operating expenses increased $31.8 million, or 13.0%, in the third quarter of
1999 to $277.1 million from $245.2 million in 1998. This increase reflects the
rise in volume, partially offset by improved fleet utilization and a $17.8
million favorable impact in 1998 related to changes in the actuarial estimates
of self-
9
<PAGE> 12
insured losses. Direct vehicle and operating expenses increased $168.4 million
for the nine months ended September 30, 1999 to $741.7 million from $573.3
million in 1998. This increase was due to the acquisition of Ryder TRS and the
previously mentioned volume, utilization and self-insurance factors. The cost of
retail vehicle sales decreased $25.4 million, or 15.3%, in the third quarter of
1999 to $139.9 million from $165.3 million in the third quarter of 1998. This
was due to the reduction in the number of retail car locations in the third
quarter of 1999 compared to the same period in 1998. For the nine-month period
ended September 30, 1999, these costs increased $64.9 million, or 17.2%, to
$440.5 million from $375.7 million in 1999 and 1998, respectively. The increase
for the nine months ended September 30, 1999 is largely due to the $83.3 million
of car sales costs associated with the new car dealership acquisitions acquired
in June 1998. Selling general and administrative expenses increased by $32.9, or
25.7%, million in the third quarter of 1999 to $160.9 million from $128.0
million in the third quarter of 1998 and increased $121.1 million to $450.6
million from $329.5 million for the nine months ended September 30, 1999 and
September 30, 1998, respectively. These increases reflected higher selling costs
associated with increased rental revenue for the 1999 periods and a $11.6
million and $1.6 million reduction in 1999 of third party funding of advertising
and promotion in the third quarter and year to date periods, respectively.
Amortization and non-vehicle depreciation expense increased $1.3 million, or
7.8%, in the third quarter of 1999 to $17.4 million from $16.2 million in the
third quarter of 1998. For the nine-month period ended September 30, 1999,
expenses in this category increased $15.8 million, or 42.8%, to $52.7 million
from $36.9 million at September 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 $12.1
million, or 22.4%, in the third quarter of 1999 to $66.2 million from $54.1
million in the third quarter of 1998 and increased $20.6 million, or 13.9%, to
$169.0 million in the first nine months of 1999 compared to $148.4 million for
the same period in 1998. These increases were largely due to higher borrowing
levels reflecting the larger average fleet size and an increase in average
interest rates resulting from the issuance of the senior notes in April 1999 and
MTN's in June 1999, both of which replaced maturing debt that had lower interest
rates, and a general rise in interest rates during 1999.
Provision for income taxes. The overall year to date tax provision
reflects the expected full year effective rate, 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 $14.2 million for the three- and
nine-month periods ended September 30, 1999, respectively, represent dividend
payments to holders of these Company 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 Trends and Developments
The Company is actively pursuing the franchising of several retail car
sales locations either through independent ownership or joint venture. In
addition, certain locations may be designated for closure. By year-end, any
remaining car sales locations are expected to be integrated into Budget Rent a
Car North America as part of an overall strategy to improve the vehicle holding
and disposal costs. The Company has not estimated the cost it will incur to
dispose or close affected locations or the impact these actions may otherwise
have on operating results. The impact on operating results in dependent upon the
nature and extent of location closings and/or franchising activities that occur.
Beginning in the first quarter of 2000, the Company will discontinue reporting
car sales as a separate segment.
Premier Car Rental, LLC, the Company's insurance replacement subsidiary, is
being integrated into Budget Rent a Car's local market operations. Redundant
facilities, administration and fleet are in the process of being identified and
phased out as appropriate. The extent of location closings has not yet been
determined,
10
<PAGE> 13
although the Company expects to experience $3 to $4 million of losses in the
fourth quarter resulting from disposing of certain vehicles sooner than
anticipated.
The Company has been approached by strategic and financial buyers
expressing interest in certain of its non-core businesses. These inquiries are
being pursued and may result in the sale of one or more businesses. The Company
has engaged an advisor to assist in the evaluation and potential sale of assets
and companies. These sales, if consummated, could have a material impact on the
Company's financial position and results of its operations.
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
September 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 29.7% to $568.8 million
during the nine months ended September 30, 1999 from $438.6 million during the
nine-month period ended September 30, 1998. The improvement is largely an
increase in net income, an increase in charges resulting from non-cash items and
an increase in accounts payable and accrued liabilities.
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 $1,940.5 million and
$1,832.8 million during the first nine months of 1999 and 1998, respectively.
Cash paid to suppliers of revenue earning vehicles was $3,009.4 million and
$2,584.3 million during the first nine months of 1999 and 1998, respectively.
Payment for acquisitions, net of cash acquired, amounted to $1.0 million and
$180.0 million during the first nine 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 $63.2 million and
$74.9 million for the first nine months of 1999 and 1998, respectively.
Net cash provided by financing activities for the nine-month period ended
September 30, 1999 decreased to a net use of $62.1 million from $587.7 million
during the nine-month period ended September 30, 1998. This was due primarily to
the incremental use of restricted cash (investing activity) of $405.5 million,
rather than debt, to finance the acquisition of revenue earning vehicles.
In the first quarter of 2000, the Company is required to pay the former
owners of Ryder TRS, in conjunction with the acquisition of Ryder TRS, a
make-whole payment, and has the right to buy back warrants, the value of which
is capped at $19 million, to purchase Class A common stock. The make-whole
payment, to the extent that the Class A common stock trades below approximately
$33 per share during the 30-day measurement period ending on February 19, 2000,
may be made in cash and/or stock, at the Company's option. The Company is taking
measures to allow it to purchase the warrants and settle the make-whole payment
in cash, which, based on recent stock prices, is expected to aggregate $60 to
$65 million.
11
<PAGE> 14
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 September 30,
1999, the Company had $3,721.2 million of indebtedness outstanding, $3,268.3
million of which represented secured fleet financing and $452.9 million of which
represented non-vehicle indebtedness. At September 30, 1999, the Company had
$471.9 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 notes issued in conjunction with
the Ryder TRS acquisition ("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 June
1999, the Company exchanged all of the unregistered initial Notes for registered
Notes with identical terms.
In June 1999, the Company issued MTN notes with a principal amount of
$950.0 million bearing interest at rates ranging from 5.62% to 7.85% at
September 30, 1999 ("TFFC-99 notes"). These notes have maturity dates from 2001
to 2004.
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 made in September 1999. These maturities are largely
being funded through proceeds received from the issuance of the Notes and the
TFFC-99 notes.
FLEET FINANCING FACILITIES
At September 30, 1999, the Company had borrowed $2.8 billion under
asset-backed MTN's and $195.1 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"), 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 September 30, 1999,
ranged from 5.55% to 7.85%.
12
<PAGE> 15
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 September 1999 consist of $250.2
million for rental vehicles and $64.9 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 September 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 September 30, 1999,
the CP debt was $195.1 million and had various interest rates, which ranged
between 5.55% and 5.65%. 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 $215.0 million with interest
rates ranging from 6.19% to 7.10% at September 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 TFFC-99 notes issued in June 1999 consist of $950.0 million with rates
ranging from LIBOR plus 0.24% (or 5.62%) to 7.85% and have maturity dates from
2001 to 2004. 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 $290.3 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%
(7.65% at September 30, 1999) and expires in 2003. There is no outstanding
balance on this facility at September 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 September 30, 1999, the
13
<PAGE> 16
Company had $449.4 million in letters of credit outstanding resulting in
availability under this facility of $100.6 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 $158.8 million from $5,134.1 million at December 31,
1998 to $5,292.9 million at September 30, 1999. This increase was due primarily
to an increase in revenue earning vehicles, net of $565.6 million, offset by a
decrease in restricted cash of $405.5 million to fund the increase in the
vehicles.
Total liabilities increased by $146.3 million from $4,192.3 million at
December 31, 1998 to $4,338.6 million at September 30, 1999. This increase,
largely notes payable of $86.1 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 sales locations and centralization of certain finance and administration
functions of the Company. At September 30, 1999, all of the employees affected
have been terminated and the Company has accruals remaining related to the
restructuring of $7.1 million. During the nine-month period ended September 30,
1999, approximately $5.1 million has been paid or utilized and accrual
reductions of approximately $0.8 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 $4.2 million was spent in 1999 through
September 30. The most significant systems are the reservation and rental
transaction processing systems. A
14
<PAGE> 17
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 most major modification efforts have been completed at September 30, with
some minor projects extending into the fourth quarter of 1999. The remediation
of the reservation system and BRACC's rental management system is complete.
The Company has suspended further development on its new Ryder TRS truck
rental management system and is remediating its current system due to the low
likelihood of completing a roll out of a new system to all dealers and owned
locations by year-end. The cost of this remediation effort is expected to be
approximately $2.0 million. This project is expected to be completed by November
30, 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 its critical suppliers' preparedness for Y2K have been received,
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. Based
on responses from vehicle manufacturers, the Company believes that the computer
technology embedded in the vehicles it has and will purchase in the future is
Y2K ready.
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 has developed 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 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 $0.8 million was
spent in 1999 through September 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 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
15
<PAGE> 18
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 September 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.
16
<PAGE> 19
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 13, 1999, the Company issued an aggregate of 693,742 shares of
Class A common stock to certain former shareholders of Ryder TRS as payment for
the first of two make-whole payments owed to the former Ryder TRS shareholders
pursuant to the terms of an Agreement and Plan of Merger dated March 4, 1998.
On August 20, 1999, the Company issued an aggregate of 229,529 shares of
Class A common stock to the former shareholders of Warren Wooten Ford in
satisfaction of make-whole obligations owed to such shareholders pursuant to the
terms of a Plan and Agreement of Merger dated May 31, 1998.
On August 25, 1999, the Company issued an aggregate of 209,813 shares of
Class A common stock to the former shareholders of Carson Chrysler Plymouth
Dodge Jeep Eagle, Inc. in satisfaction of make-whole obligations to such
shareholders pursuant to the terms of a Stock Purchase Agreement dated May 31,
1998.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
None.
17
<PAGE> 20
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)
By: /s/ MICHAEL B. CLAUER
------------------------------------
Michael B. Clauer
Executive Vice President Chief
Financial Officer
Dated: November 12, 1999
By: /s/ THOMAS L. KRAM
------------------------------------
Thomas L. Kram
Vice President, Controller
(Principal Accounting Officer)
Dated: November 12, 1999
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF BUDGET GROUP INC. FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 65,532
<SECURITIES> 0
<RECEIVABLES> 399,006
<ALLOWANCES> 0<F1>
<INVENTORY> 3,490,486
<CURRENT-ASSETS> 3,955,024
<PP&E> 238,575
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 5,292,851
<CURRENT-LIABILITIES> 617,468
<BONDS> 3,721,163
291,385
0
<COMMON> 372
<OTHER-SE> 662,463
<TOTAL-LIABILITY-AND-EQUITY> 5,292,851
<SALES> 2,370,537
<TOTAL-REVENUES> 2,370,537
<CGS> 440,523
<TOTAL-COSTS> 1,685,197
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 168,987
<INCOME-PRETAX> 75,830
<INCOME-TAX> 31,175
<INCOME-CONTINUING> 30,436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,436
<EPS-BASIC> 0.84
<EPS-DILUTED> 0.84
<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>
