<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 22, 1999
--------------
Budget Group, Inc.
------------------
(Exact name of registrant as specified in its charter)
Delaware 0-78274 59-3227576
- - ------------------------------- ------------------- ---------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
125 Basin Street, Suite 210, Daytona Beach, FL 32114
- - ---------------------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 238-7035
---------------
Former name or former address, if changed since last report: N/A
-----
The Exhibit Index is at page 34.
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<PAGE> 2
ITEM 5. OTHER EVENTS
Budget Group, Inc. is filing this report to disseminate to the public
the following financial statements and pro forma financial information:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUDGET GROUP, INC. AND SUBSIDIARIES........................... 3
Report of Independent Certified Public Accountants.......... 4
Consolidated Balance Sheets at December 31, 1997 and 1998... 5
Consolidated Statements of Operations for Each of the Three
Years in the period ended December 31, 1998............... 6
Consolidated Statements of Stockholders' Equity for each of
the Three Years in the period ended December 31, 1998..... 7
Consolidated Statements of Cash Flows for each of the Three
Years in the period ended December 31, 1998............... 8
Notes to Consolidated Financial Statements.................. 8
BUDGET GROUP, INC. UNAUDITED PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Financial Information -- Basis of
Presentation.............................................. 30
Unaudited Pro Forma Statement of Operations for the Year
Ended December 31, 1998.................................... 31
</TABLE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
<S> <C>
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule (for SEC purposes only)
</TABLE>
2
<PAGE> 3
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Budget Group, Inc.:
We have audited the accompanying consolidated balance sheets of Budget
Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Budget Group, Inc. and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Orlando, Florida,
February 23, 1999
3
<PAGE> 4
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 161,455 $ 136,184
Restricted cash............................................. 282,731 421,467
Trade and vehicle receivables, net.......................... 334,018 425,183
Vehicle inventory........................................... 46,944 81,028
Revenue earning vehicles, net............................... 2,093,304 2,839,183
Property and equipment, net................................. 147,547 229,318
Prepaid expenses and other assets........................... 91,681 179,218
Intangibles, including goodwill, less accumulated
amortization of $11,739 in 1997 and $35,054 in 1998....... 532,228 822,490
---------- ----------
$3,689,908 $5,134,071
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable............................................... $2,686,199 $3,635,095
Accounts payable, accrued and other liabilities............. 434,291 517,107
Deferred income taxes....................................... 110,479 40,119
---------- ----------
Total liabilities................................. 3,230,969 4,192,321
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTES 11, 13 AND 14).........
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY.................................. -- 291,160
---------- ----------
STOCKHOLDERS EQUITY
Class A common stock, $0.01 par value, one vote per share,
70,000,000 shares authorized. Shares issued, 25,528,545 in
1997 and 34,064,812 in 1998............................... 255 341
Class B common stock, $0.01 par value, 10 votes per share,
2,500,000 shares authorized, 1,936,600 shares issued (in
1997 and 1998)............................................ 19 19
Additional paid-in capital.................................. 425,222 670,089
Foreign currency translation adjustment..................... (2,477) (5,169)
Retained earnings (deficit)................................. 36,250 (12,677)
Treasury stock, at cost (36,667 in 1997 and 176,867 in 1998
shares of Class A common stock)........................... (330) (2,013)
---------- ----------
Total stockholders' equity........................ 458,939 650,590
---------- ----------
Total liabilities and stockholders' equity........ $3,689,908 $5,134,071
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1997 1998
--------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING REVENUE:
Vehicle rental revenue.................................... $276,294 $1,070,436 $1,934,750
Retail vehicle sales revenue.............................. 169,336 289,111 583,252
Royalty fees and other.................................... 2,178 51,889 98,197
-------- ---------- ----------
Total operating revenue........................... 447,808 1,411,436 2,616,199
-------- ---------- ----------
OPERATING EXPENSES:
Direct vehicle and operating.............................. 130,259 464,756 815,748
Depreciation - vehicle.................................... 71,734 292,112 500,210
Cost of vehicle sales..................................... 146,513 251,068 524,907
Selling, general and administrative....................... 46,282 208,974 498,075
Amortization and non-vehicle depreciation................. 5,419 23,530 54,526
Restructuring and pooling expenses........................ -- -- 16,457
-------- ---------- ----------
Total operating expenses.......................... 400,207 1,240,440 2,409,923
-------- ---------- ----------
OPERATING INCOME............................................ 47,601 170,996 206,276
-------- ---------- ----------
OTHER (INCOME) EXPENSE:
Vehicle interest expense.................................. 32,405 101,066 188,165
Non-vehicle interest expense.............................. 3,125 20,075 13,422
Interest income........................................... (781) (5,744) (11,348)
Debt extinguishment costs................................. -- -- 9,454
-------- ---------- ----------
Total other expense, net.......................... 34,749 115,397 199,693
-------- ---------- ----------
INCOME BEFORE INCOME TAXES.................................. 12,852 55,599 6,583
Provision for income taxes................................ 5,101 25,825 257
Distributions on trust preferred securities............... -- -- 9,957
-------- ---------- ----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................. 7,751 29,774 (3,631)
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT
(Net of income taxes of $26,602).......................... -- -- (45,296)
-------- ---------- ----------
NET INCOME (LOSS)........................................... $ 7,751 $ 29,774 $ (48,927)
======== ========== ==========
Basic earnings per share:
Weighted average number of shares outstanding............... 10,836 20,112 32,067
Income (loss) before extraordinary item................... $ 0.72 $ 1.48 $ (0.12)
Extraordinary item........................................ 0.00 0.00 (1.41)
-------- ---------- ----------
Net income (loss)......................................... $ 0.72 $ 1.48 $ (1.53)
======== ========== ==========
Diluted earnings per share:
Weighted average number of shares outstanding............... 11,149 27,863 32,067
Income (loss) before extraordinary item................... $ 0.70 $ 1.25 $ (0.12)
Extraordinary item........................................ 0.00 0.00 (1.41)
-------- ---------- ----------
Net income (loss)......................................... $ 0.70 $ 1.25 $ (1.53)
======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FOREIGN
CONVERTIBLE ADDITIONAL CURRENCY RETAINED TOTAL
PREFERRED COMMON PAID-IN TRANSLATION EARNINGS TREASURY STOCKHOLDERS
STOCK STOCK CAPITAL ADJUSTMENT (DEFICIT) STOCK TOTAL
----------- ------ ---------- ----------- --------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.......... $ -- $ 87 $ 66,931 $ (685) $ (1,275) $ (330) $ 64,728
Comprehensive income:
Net Income........................ -- -- -- -- 7,751 --
Foreign currency translation...... -- -- -- (35) -- --
Total comprehensive income.......... 7,716
Shares issued in business
combinations.................... -- 2 2,725 -- -- -- 2,727
Warrants issued in conjunction
with financing.................. -- -- 686 -- -- -- 686
Net proceeds from stock
offering........................ -- 38 44,402 -- -- -- 44,440
Proceeds from exercise of stock
options......................... -- 1 147 -- -- -- 148
--------- ---- -------- ------- -------- -------- ------------
Balance, December 31, 1996.......... -- 128 114,891 (720) 6,476 (330) 120,445
Comprehensive income:
Net income........................ -- -- -- -- 29,774 --
Foreign currency translation...... -- -- -- (1,757) -- --
Total comprehensive income.......... 28,017
Shares issued in business
combinations.................... 105,750 2 8,521 -- -- -- 114,273
Net proceeds from stock
offerings....................... -- 91 188,406 -- -- -- 188,497
Proceeds from exercise of stock
options......................... -- 6 5,663 -- -- -- 5,669
Conversion of preferred stock..... (105,750) 45 105,705 -- -- -- --
Proceeds from exercise of
warrants........................ -- 2 2,036 -- -- -- 2,038
--------- ---- -------- ------- -------- -------- ------------
Balance, December 31, 1997.......... -- 274 425,222 (2,477) 36,250 (330) 458,939
Comprehensive income:
Net loss.......................... -- -- -- -- (48,927) --
Foreign currency translation...... -- -- -- (2,692) -- --
Total comprehensive income.......... (51,619)
Shares issued in business
combinations.................... -- 42 154,316 -- -- -- 154,358
Proceeds from exercise of stock
options......................... -- 1 1,740 -- -- -- 1,741
Conversion of debt................ -- 43 88,811 -- -- -- 88,854
Purchase of treasury shares....... -- -- -- -- -- (1,683) (1,683)
--------- ---- -------- ------- -------- -------- ------------
Balance, December 31, 1998.......... $ -- $360 $670,089 $(5,169) $(12,677) $ (2,013) $ 650,590
========= ==== ======== ======= ======== ======== ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1997 1998
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ 7,751 $ 29,774 $ (48,927)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary item, net................................ -- -- 45,296
Depreciation and amortization.......................... 76,491 312,087 554,736
Deferred income tax provision (benefit)................ 4,247 24,518 (4,502)
Warrants issued in connection with financing........... 686 -- --
Debt extinguishment cost............................... -- -- 9,454
Changes in operating assets and liabilities, net of
effects from acquisitions:
Trade and vehicle receivables, net.................. (2,988) (95,635) (60,326)
Vehicle inventory................................... (1,253) (3,284) (13,525)
Prepaid expenses and other assets................... (53) (7,359) (78,582)
Accounts payable, accrued and other liabilities..... (7,704) (24,456) (28,312)
--------- ----------- -----------
Net cash provided by operating activities...... 77,177 235,645 375,312
--------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in restricted cash balance...................... 1,395 (213,715) (130,086)
Proceeds from sale of revenue earning vehicles......... 484,084 1,747,286 2,456,931
Proceeds from sale of property and equipment........... 4 19,490 11,622
Purchases of revenue earning vehicles.................. (569,118) (2,063,627) (3,176,015)
Purchases of property and equipment.................... (3,362) (10,893) (88,358)
Payment for acquisitions, net of cash acquired......... (5,064) (143,164) (179,977)
--------- ----------- -----------
Net cash used in investing activities.......... (92,061) (664,623) (1,105,883)
--------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in commercial paper............ (4,900) 348,850 (30,955)
Proceeds from medium term notes........................ 176,000 500,000 1,100,000
Principal payments on medium term notes................ -- (9,624) (30,376)
Net increase (decrease) in other vehicle obligations... (208,920) (684,476) (269,270)
Net increase (decrease) in working capital
facilities.......................................... (9,500) -- 50,000
Proceeds from other notes payable...................... 80,000 210,000 24,379
Principal payments on other notes payable.............. (8,876) (24,099) (35,308)
Proceeds from trust preferred securities............... -- -- 291,000
Proceeds from equity transactions, net................. 44,588 196,204 1,741
Purchase of treasury stock............................. -- -- (1,683)
Early redemption of notes payable...................... -- -- (394,234)
Payment of financing fees.............................. (2,237) -- --
--------- ----------- -----------
Net cash provided by financing activities...... 66,155 536,855 705,294
Effect of exchange rate on cash.......................... (35) (431) 6
--------- ----------- -----------
Net increase (decrease) in cash and cash equivalents..... 51,236 107,446 (25,271)
Cash and cash equivalents, beginning of year............. 2,773 54,009 161,455
--------- ----------- -----------
Cash and cash equivalents, end of year................... $ 54,009 $ 161,455 $ 136,184
========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Budget Group, Inc. and subsidiaries (the "Company") are engaged in the
business of the daily rental of vehicles, including cars, trucks, passenger vans
and recreational vehicles (through both owned and franchised operations) and the
sale of late model used vehicles and new recreational vehicles. On April 29,
1997, pursuant to stock purchase agreements entered into on January 13, 1997,
the Company completed its acquisition of Budget Rent a Car Corporation ("BRACC")
in a purchase transaction and changed its name (formerly Team Rental Group,
Inc.) to Budget Group, Inc. Prior to the acquisition (the "BRACC Acquisition"),
the Company was the largest United States franchisee of BRACC. On January 28,
1998, the Company completed its acquisition of Cruise America, Inc. ("Cruise")
in a stock-for-stock merger accounted for as a pooling of interests. In
connection with the merger, the Company issued 1,623,478 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. On June
19, 1998, pursuant to an agreement and plan of merger, as amended, entered into
March 4, 1998, the Company completed its acquisition of Ryder TRS, Inc. ("Ryder
TRS").
The accompanying consolidated financial statements have been restated to
include the accounts of Cruise as if the companies had combined at the beginning
of the first period presented. Prior to the merger, Cruise's fiscal year ended
on April 30. In recording the business combination, Cruise's prior year
financial statements have been restated to conform with the Company's fiscal
year end.
There were no significant transactions between the Company and Cruise prior
to the combination and immaterial adjustments were recorded to conform Cruise's
accounting policies. The results of operations for the separate companies and
the combined amounts presented in the consolidated statements of operations are
as follows.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
--------- -----------
<S> <C> <C>
Operating revenue
Budget Group, Inc......................................... $357,370 $1,303,762
Cruise America, Inc....................................... 90,438 107,674
-------- ----------
Combined............................................... $447,808 $1,411,436
======== ==========
Net Income (loss)
Budget Group, Inc......................................... $ 4,497 $ 36,926
Cruise America, Inc....................................... 3,254 (7,152)
-------- ----------
Combined............................................... $ 7,751 $ 29,774
======== ==========
</TABLE>
Company-owned vehicle rental operations are located primarily throughout
the United States and Western Europe. The largest concentration (approximately
13%) of vehicle rental assets is located in the highly competitive Florida
market. Franchised vehicle operations are located worldwide. Customers are
mainly business and leisure travelers. No customer accounts for more than 10% of
the Company's revenues.
8
<PAGE> 9
Principles of Consolidation
The consolidated financial statements include the accounts and operations
of the Company and its majority-owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation. Investments in
less than majority-owned entities are accounted for using the equity method,
under which the Company's share of operating results are reflected in income as
earned and dividends are credited against the investment when received.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Changes in Accounting Estimates
During 1998, the Company recorded adjustments related to actuarial
estimates of its self-insurance liability. The effect of these adjustments was
to increase income before extraordinary item and net income by $14,200 ($0.44
per diluted share).
Cash and Cash Equivalents
The Company considers all highly liquid investments including money market
funds, commercial paper and time deposits purchased with an original maturity of
three months or less to be cash equivalents.
Restricted Cash
Restricted cash consists of funds borrowed under medium term note and
commercial paper programs not invested in revenue earning vehicles. Under the
terms of these agreements, any unused funds are required to be maintained in
restricted accounts and are invested in qualified short-term instruments.
Trade and Vehicle Receivables, Net
Trade and vehicle receivables are stated net of the related allowance for
doubtful accounts. The following table reflects the activity in the allowance
for doubtful accounts for the years ended December 31,
<TABLE>
<CAPTION>
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Balance at beginning of year................................ $2,451 $ 4,063 $49,072
Provision................................................... 453 8,415 26,529
Write-offs.................................................. (181) (9,035) (8,637)
Increase due to acquisitions................................ 1,340 45,629 3,737
------ ------- -------
Balance at end of year...................................... $4,063 $49,072 $70,701
====== ======= =======
</TABLE>
Vehicle Inventory
Vehicle inventory is stated at the lower of cost (determined based on
specific identification) or market.
Revenue Earning Vehicles
Revenue earning vehicles are stated at cost less related discounts and
manufacturers' incentives or fair market value at the date of acquisition, as
appropriate, and are depreciated over their estimated economic lives or at rates
corresponding to manufacturers' repurchase program guidelines, where applicable.
9
<PAGE> 10
Repurchase programs typically require the manufacturers to repurchase the
vehicles after varying time frames at agreed upon prices (subject to defined
condition and mileage standards). Depreciation rates generally range from 1.0%
to 2.5% per month. Management periodically reviews depreciable lives and rates
for adequacy based on a variety of factors including general economic conditions
and estimated holding period of the vehicles. Gains and losses upon the sale of
revenue earning vehicles are recorded as an adjustment to depreciation expense.
Property and Equipment
Property and equipment is recorded at cost or fair market value at the date
of acquisition, as appropriate. Depreciation is provided on the straight-line
method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings................................................... 10-25 years
Equipment, furniture and fixtures........................... 3-10 years
</TABLE>
The carrying value of property and equipment is reviewed whenever events or
changes in circumstances indicate that the carrying value may not be recoverable
through projected undiscounted future operating cash flows. In the fourth
quarter of 1998, assets of approximately $600 were written off by a charge to
direct vehicle expenses. Although no additional impairment is indicated at
December 31, 1998, the assessment of recoverability will be impacted if
estimated projected undiscounted operating cash flows are not achieved.
Deferred Financing Fees
Direct costs incurred in connection with the Company's borrowings have been
recorded as a prepaid expense and are being amortized over the terms of the
related loan agreements to interest expense on the straight-line method, which
approximates the effective interest method.
Computer Software Systems
The Company's purchased reservation system and associated applications and
databases have been recorded at fair market value at the date of acquisition.
Costs associated with the internal development of other computer software
systems and system enhancements are capitalized in accordance with AICPA
Statement of Position 98-1 "Accounting for Costs of Computer Software Developed
or Obtained for Internal Use". Amortization is being provided on the
straight-line method over two to eight years.
Intangibles, Including Goodwill
Intangible assets, net, consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Franchise agreements........................................ $118,000 $126,922
Trade name.................................................. 187,817 214,936
Goodwill.................................................... 226,411 480,632
-------- --------
$532,228 $822,490
======== ========
</TABLE>
Identifiable intangible assets primarily arose from the allocation of
purchase prices of businesses acquired. Franchise agreements and trade name
relate to the BRACC and Ryder Acquisitions. Goodwill represents the excess of
the purchase price over the estimated fair value of all identifiable assets
acquired. The intangible assets are amortized over the related estimated useful
lives, which range from 8 to 40 years using the straight-line method. The
carrying value of intangibles is reviewed whenever events or changes in
circumstances indicate that the carrying value may not be recoverable through
projected undiscounted future operating cash flows. In the fourth quarter of
1998, intangible assets of approximately $3,170 were written off by a charge to
amortization and non-vehicle depreciation expense. Although no additional
impairment is indicated at December 31, 1998, the assessment of recoverability
will be impacted if estimated projected undiscounted operating cash flows are
not achieved.
10
<PAGE> 11
Environmental Costs
Environmental remediation costs are recorded in accounts payable, accrued
and other liabilities and in direct vehicle and operating expense in the
accompanying consolidated financial statements based on estimates of known
environmental remediation exposures when it becomes probable that a liability
has been incurred. Environmental exposures are largely related to underground
storage tanks. Expenditures are expected to be made over the next three years. A
receivable is recorded for amounts recoverable from third-parties when
collection becomes probable.
Self Insurance Liability
The Company is largely self-insured with respect to personal and property
liability claims up to specified limits. Third-party insurance is maintained in
limited areas and for claims in excess of those specified limits. A liability in
the amount of $129,774 and $121,680 as of December 31, 1997 and 1998,
respectively, which is included in accounts payable, accrued and other
liabilities, is recorded for known claims and for incurred but not reported
incidents based on actuarially computed estimates of expected loss. The
liability recorded as a result of these actuarially computed estimates may
experience material changes from year to year as incurred but not reported
incidents become known and known claims are settled.
The Company maintained unused letters of credit totaling $68,935 at
December 31, 1998, largely in support of its insurance liability in certain
states and supporting the reimbursement of claims paid by third-party claims
administrators.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities, as measured by the enacted tax rates which will be in effect
when those temporary differences are expected to be recovered or settled.
Deferred tax expense is the result of changes in the net deferred tax assets and
liabilities. The effect of a change in tax rates is recognized in the period
that includes the enactment date. Deferred taxes are recognized to the extent
they are expected to be payable upon distribution of earnings of foreign and
unconsolidated subsidiaries.
Translation of Foreign Financial Statements
The financial statements of the Company's foreign affiliates have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation".
Accordingly, assets and liabilities of foreign operations are translated at
period-end rates of exchange, with any resulting translation adjustments
reported as a separate component of stockholders' equity. Statement of
operations accounts are translated at average exchange rates for the period and
gains and losses from foreign currency transactions are included in net income
(loss).
Royalty Fees and Other Revenues
Royalty fees and other revenues largely consist of monthly royalty fees
from franchisees, fees generated from move management services, income before
interest and taxes for insurance products and credit card processing operations,
the Company's share of operating results of equity investees' and revenues
generated from miscellaneous services provided to the Company's franchisees.
Advertising, Promotion and Selling
Advertising, promotion and selling expense, other than direct response
advertising, are charged to expense as incurred. The Company incurred
advertising expense of $9,094, $36,636 and $66,118 in 1996, 1997 and 1998,
respectively.
11
<PAGE> 12
Derivatives
Premiums paid for purchased interest rate cap agreements are amortized to
interest expense over the terms of the cap. Unamortized premiums are included in
prepaid expenses and other assets in the accompanying consolidated balance
sheets. Accounts receivable under cap agreements are accrued with a
corresponding reduction of interest expense. There were no such agreements
outstanding at December 31, 1998.
Interest rate collars are sometimes used to limit the exposure of the
Company to interest rate changes. The Company pays in the event interest rates
fall below the contractual floor level and receives payment in the event the
interest rate rises above the contractual ceiling level. Accounts payable and
accounts receivable under collar agreements are recorded with a corresponding
increase or decrease to interest expense, respectively. At December 31, 1998 the
Company has $250 related to interest rate collars included in accounts payable,
accrued and other liabilities.
Gains and losses on foreign exchange contracts and futures related to
qualifying hedges of firm commitments or anticipated transactions are deferred
and are recognized in income when the hedged transaction occurs. There were no
such contracts outstanding at December 31, 1998. The Company does not engage in
speculative derivatives.
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 and is effective for the Company
beginning in July 1999. 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 in
the third quarter of 1999.
Stock Options
On April 25, 1994, the Company adopted the 1994 Incentive Stock Option Plan
and the 1994 Directors Stock Options Plan. The Company records compensation
expense for stock options under these plans in accordance with APB Opinion 25.
The Company has adopted the pro forma disclosure requirement provisions of SFAS
No. 123.
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 been issued. The following table reconciles the
income before extraordinary items and number of shares utilized in the earnings
per share calculations for each of the three years in the period ended December
31, 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Income (loss) before extraordinary item..................... $ 7,751 $29,774 $(3,631)
Effect of interest, distributions, and loan fee amortization
on convertible securities -- net of income taxes.......... -- 4,983 --
------- ------- -------
Net income (loss) available to common stockholders after
assumed conversion of dilutive securities................. $ 7,751 $34,757 $(3,631)
======= ======= =======
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
(000's) (000's) (000's)
Weighted average number of common shares used in basic
EPS....................................................... 10,836 20,112 32,067
Effect of dilutive securities:
Stock options............................................. 313 704 --
Convertible debt.......................................... -- 7,047 --
------- ------- -------
Weighted average number of common shares and dilutive
potential common stock used in diluted EPS................ 11,149 27,863 32,067
======= ======= =======
</TABLE>
Options to purchase approximately 3,637,317 shares of Class A common stock
were outstanding at December 31, 1998, but were not included in the computation
of diluted EPS as any options included in the calculation would be antidilutive
due to the net loss.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 established new standards for
reporting and presenting comprehensive income and its components in a full set
of general purpose financial statements. The Company's only adjustment to arrive
at comprehensive income is the foreign currency translation adjustment and is
presented in the accompanying Statement of Stockholders' Equity.
Reclassifications
Certain amounts in the 1996 and 1997 consolidated financial statements have
been reclassified to conform with the current year presentation.
2. PUBLIC STOCK OFFERINGS
The Company sold 3,821,007 shares of Class A common stock on July 2, 1996,
at $13.00 per share to investors in a public offering resulting in gross
proceeds of $49,673 to the Company. Net proceeds to the Company after offering
expenses were $44,440. The net proceeds were used to repay certain outstanding
indebtedness and for general corporate purposes.
The Company sold 8,625,000 shares of Class A common stock on April 29,
1997, (at a price of $21.625 per share) raising proceeds of $174,489, net of
applicable offering costs. An additional 450,000 shares of Class A common stock
were sold on October 1, 1997, (at a price of $33.00 per share) raising net
proceeds of $14,008. The net proceeds of the April offering were used to provide
a portion of the financing for the acquisition of BRACC. The net proceeds of the
October offering were used for working capital purposes.
3. ACQUISITIONS
During 1996, 1997 and 1998, the Company acquired certain Budget franchise
operations, retail vehicle sales operations, a commuter van pooling operation,
BRACC, Ryder TRS, Cruise (a recreational vehicle rental and sales company), and
an insurance replacement car rental company. The acquisitions have been
accounted for under the purchase method of accounting, except for Cruise which
is accounted for as a pooling of interests, and, accordingly, the Company has
allocated the cost of the acquisitions on the basis of the estimated fair value
of the tangible and identifiable intangible assets acquired and liabilities
assumed. The accompanying consolidated statements of operations and cash flow
reflect the operations of the acquired companies accounted for as purchases from
their respective acquisition dates.
13
<PAGE> 14
1996 Acquisitions
Acquisition of VPSI, Inc. ("VPSI") Van Pool Operations -- In February 1996,
the Company purchased for a nominal amount all of the outstanding stock of VPSI
located in Detroit, Michigan. VPSI provides commuter van pooling services to
business commuters in 22 states, and operated a rental fleet of approximately
3,300 vans as of the acquisition date.
Acquisition of Phoenix Franchise -- In February 1996, the Company purchased
all of the outstanding stock of Arizona Rent-A-Car Systems, Inc., located in
Phoenix, Arizona, for approximately $18,000 consisting of cash of approximately
$5,000, promissory notes of $10,000 and 272,727 shares of Class A common stock.
Acquisition of ValCar Rental Car Sales, Inc. -- In August 1996, the Company
acquired all of the outstanding stock of ValCar Rental Car Sales, Inc., for $400
cash. ValCar owned and operated four retail vehicle sales facilities in
Indianapolis, Indiana, and was formerly owned by a director and officer of the
Company.
1997 Acquisitions
BRACC Acquisition -- On January 13, 1997, the Company entered into an
agreement to purchase all of the outstanding shares of BRACC in a purchase
transaction. The cash portion of the purchase price (approximately $275,000) was
partially funded through a stock offering. The Company also issued to Ford Motor
Company ("Ford"), 4,500 shares of Series A convertible, non-voting preferred
stock, each share of which was converted into 1,000 shares of Class A common
stock in a public offering in October 1997. The common shares underlying the
preferred stock has a value of approximately $105,800 for purposes of
determining the purchase price (based on the three day period beginning January
12) and $95,200 at the time of issuance. The Company also entered into the
following debt financing transactions concurrently with the BRACC Acquisition:
(i) $165,000 of guaranteed senior notes at a rate of 9.57% maturing in 2007;
(ii) $45,000 of convertible subordinated notes at a rate of 6.85% maturing in
2007; (iii) a variable-rate commercial paper vehicle financing facility in the
amount of $900,000; (iv) a $500,000 asset-backed note vehicle financing facility
maturing in 2001 and 2002, composed of a senior note in the amount of $472,500
bearing interest at a rate of 7.35% and a subordinated note in the amount of
$27,500 bearing interest at a rate of 7.80%; and (v) a $300,000 five-year
secured working capital facility bearing interest at an initial rate of 1.75%
over LIBOR and secured primarily by accounts receivable, cash and unencumbered
vehicles.
Acquisition of Premier Car Rental -- On July 31, 1997, the Company
acquired, through its wholly owned subsidiary, Premier Car Rental LLC
("Premier"), the fleet and certain other assets and assumed certain liabilities
of Premier Car Rental, Inc. for approximately $87,200 consisting of $2,000 in
cash and the refinancing of approximately $85,200 of outstanding indebtedness.
Premier operates as its own brand and serves the insurance replacement market.
Acquisition of St. Louis Franchise -- In October 1997, the Company
purchased the St. Louis, Missouri Budget franchisee for approximately $9,000,
consisting of $1,000 in cash and 246,167 shares of Class A common stock.
1998 Acquisitions
Make Whole Provisions
The Company has entered into agreements in conjunction with the Ryder TRS
and other acquisitions to guarantee the market value of Class A common stock
issued in conjunction with the acquisitions. A make-whole payment will be
delivered if the price of the stock 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.
14
<PAGE> 15
Acquisitions
Acquisition of Ryder TRS -- 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, 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, which
guarantees the market value of the Class A common stock at approximately $33.00
per share over two 30 day measurement periods in 1999 and 2000. 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. Allocations of the purchase
price based on the fair value of Ryder TRS' tangible and intangible assets,
using various studies and valuations, have not been finalized. However, the
Company does not expect any material changes to the allocation of the purchase
price.
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 $16,000 in cash and the issuance of 445,854 shares of Class A common
stock.
If the acquisitions had occurred at the beginning of the periods presented,
the Company's results of operations would be as shown in the following table.
These unaudited pro forma results are not necessarily indicative of the actual
results of operations that would have occurred had the acquisitions actually
been made at the beginning of the respective periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
Operating revenue........................................... $2,482,088 $2,883,023
Net income (loss) (before extraordinary item)............... (4,117) (15,445)
EPS -- basic................................................ (0.13) (0.47)
EPS -- diluted.............................................. (0.13) (0.47)
</TABLE>
Other 1998 Acquisitions
Other 1998 Acquisitions -- The Company completed several small acquisitions
of Budget franchises and other related businesses through December 31, 1998.
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 franchises were primarily
located in Puerto Rico, Canada, Austria, Spain, New Zealand, Arkansas, Ohio, and
California.
4. RESTRUCTURING
The accompanying financial statements for 1998 include charges and accruals
of approximately $14,900 ($7,100 in personnel expense and $7,800 in general and
administrative expense) related to closings of vehicle rental and car sales
locations and the centralization of certain finance and administrative functions
of the Company (the "Restructuring"). In conjunction with the Restructuring,
approximately 375 employees were identified for termination, primarily in
operations, sales, and finance. As of December 31, 1998, approximately 60% of
the affected employees have been terminated.
At December 31, 1998, the remaining accruals relating to the Restructuring
totaled approximately $13,000. During 1998, amounts paid or utilized totaled
approximately $1,900.
15
<PAGE> 16
5. REVENUE EARNING VEHICLES
Revenue earning vehicles consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Revenue earning vehicles.................................... $2,379,434 $3,212,289
Less-accumulated depreciation............................... (286,130) (373,106)
---------- ----------
$2,093,304 $2,839,183
========== ==========
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment, net, consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Land........................................................ $ 30,301 $ 50,069
Buildings and leasehold improvements........................ 101,427 133,332
Furniture, fixtures and office equipment.................... 54,225 108,468
-------- --------
185,953 291,869
Less -- accumulated depreciation and amortization........... (38,406) (62,551)
-------- --------
$147,547 $229,318
======== ========
</TABLE>
7. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets include purchased software and
capitalized software systems development costs, net of accumulated amortization,
which amounts to approximately $6,806 and $68,920 at December 31, 1997 and 1998,
respectively. In addition, prepaid expenses and other assets include the
Company's 20% investment in a foreign rental operation.
The revenue of the Company's investees amounts to less than 10% of
consolidated revenues and the amount of undistributed earnings included in
consolidated retained earnings is not significant.
8. NOTES PAYABLE
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Commercial paper............................................ $ 871,448 $ 840,493
Medium term notes:
Senior.................................................... 1,267,376 2,338,500
Subordinated.............................................. 44,682 43,182
Convertible subordinated notes.............................. 125,000 45,000
Vehicle obligations......................................... 86,400 185,296
Guaranteed senior notes..................................... 165,000 --
Senior term notes........................................... 14,171 --
Foreign notes............................................... 66,781 102,759
Working capital note........................................ -- 50,000
Note payable to vendor...................................... 15,677 --
Other....................................................... 29,664 29,865
---------- ----------
$2,686,199 $3,635,095
========== ==========
</TABLE>
16
<PAGE> 17
Debt Covenants
Many of the Company's debt obligations contain restrictive covenants, the
most restrictive of which are contained in the working capital facility. The
Company was in compliance with all covenants as of December 31, 1998.
Recent Debt and Security 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 $300,000 secured revolving
credit facility to increase such facility to $550,000, (ii) the conversion of
$80,000 of convertible subordinated notes to Class A common stock, (iii) the
redemption of $165,000 of guaranteed senior notes, (iv) the issuance, by a
subsidiary of the Company, of 6,000,000 shares of remarketable term income
deferrable equity securities ("trust preferred securities" See note 9 to
consolidated financial statements) which raised approximately $290,300, net of
related fees, (v) the private placement of $1.1 billion of TFFC-98 notes, (vi)
tendered for the redemption of $175,000 of Ryder TRS's outstanding 10% senior
subordinated notes and (vii) repaid approximately $340,000 of Ryder TRS's
outstanding commercial paper. The early extinguishment of the guaranteed senior
notes and the Ryder TRS 10% senior subordinated notes resulted in $54,634
($33,790 net of tax) of prepayment premiums and the write-off of deferred
financing fees of $18,264 ($11,506 net of tax). This has been reflected as an
extraordinary item, net of tax benefits, in the accompanying statements of
operations. The 319,768 shares issued to induce conversion of the convertible
subordinated notes were recorded at their fair value of $8,854 and reflected in
debt extinguishment costs in the accompanying statements of operations.
Commercial Paper
The $900,000 commercial paper facility (the "Paper") was established in
April 1997, has an outstanding principal balance of $840,493 and bears interest
at rates ranging from 5.45% to 5.75% at December 31, 1998,and is secured by the
applicable vehicles and vehicle program receivables. Under limited
circumstances, the Paper may be repaid by draws under a related, bank provided
liquidity facility ($825,000) or a related letter of credit ($90,000). The Paper
is issued periodically with maturities of up to 58 days. It is the Company's
intention and ability to renew the liquidity facility or to obtain financing
under similar terms when the present agreement expires in October 2002. No
amounts were drawn under the bank provided liquidity facility or related letter
of credit at December 31, 1998.
Medium Term Notes
Medium term notes are comprised of notes issued in August 1994 ("TFFC-94
notes"), notes assumed in the acquisition of BRAC-OPCO, Inc. in October 1995
("OPCO notes"), notes issued in December 1996 ("TFFC-96 notes"), notes issued in
April 1997 ("TFFC-97 notes") , notes issued in June 1998 ("TFFC-98") and notes
assumed in the BRACC Acquisition ("BFFC -- 94A notes") (collectively "MTN
notes"). MTN notes are secured by the underlying vehicles, manufacturer
receivables and restricted cash of $282,731 and $421,467 at December 31, 1997
and 1998, respectively. Under limited circumstances the MTN notes may be repaid
by draws under related letters of credit amounting to $220,000 at December 31,
1998. No amounts were drawn under the related letter of credit at December 31,
1998.
The TFFC-94 notes consist of senior notes and subordinated notes. The
senior notes, with an aggregate principal balance of $100,000 at December 31,
1997 and 1998, bear interest at an average LIBOR rate, as defined, plus 0.75%
(6.38% per annum at December 31, 1998). Monthly principal payments of $16,667
commence in June 1999 with the last payment due in November 1999. The
subordinated notes, with an aggregate principal balance of $5,682 at December
31, 1997 and 1998, bear interest at an average LIBOR rate, as defined, plus
1.30% (6.93% per annum at December 31, 1998) and are payable in full in December
1999. Interest on the TFFC-94 notes is payable monthly.
17
<PAGE> 18
The BFFC-94A notes consist of an aggregate principal balance of $500,000 at
December 31, 1998 and bear interest at an average LIBOR rate, as defined, plus
0.50% (6.15% per annum at December 31, 1998). Interest on the BFFC-94A notes is
payable monthly. Monthly principal payments of $83,333 commence in April 1999,
with the last payment due in September 1999.
The OPCO notes were repaid in full in 1998. These notes consisted of senior
notes and subordinated notes. The senior notes had an aggregate principal
balance of $28,876 and $0 in December 31, 1997 and 1998, respectively. The
subordinated notes had an aggregate principal balance of $1,500 and $0 at
December 31, 1997 and 1998, respectively.
The TFFC-96 notes consist of senior notes and subordinated notes. The
senior notes, with an aggregate principal balance of $166,000 at December 31,
1997 and 1998, bear interest at 6.65% per annum. Monthly principal payments of
$13,833 commence in May 2001 with the last payment due in April 2002. The
subordinated notes, with an aggregate principal balance of $10,000 at December
31, 1997 and 1998, bear interest at 7.10% per annum and are payable in full in
2002. Interest on the TFFC-96 notes is payable monthly.
The TFFC-97 notes consist of senior notes and subordinated notes. The
senior notes, with an aggregate principal balance of $472,500 at December 31,
1997 and 1998, bear interest at 7.35% per annum. Monthly principal payments of
$39,375 commence in October 2001, with the last payment due in September 2002.
The subordinated notes, with an aggregate principal balance of $27,500 at
December 31, 1997 and 1998, bear interest at 7.80% per annum and are payable in
full in 2002. Interest on the TFFC-97 notes is payable monthly.
The TFFC-98 notes consist of an aggregate principal balance of $1,100,000
at December 31, 1998. The TFFC-98 notes were entered into concurrently with the
acquisition of Ryder TRS and bear interest at fixed rates ranging from 6.07% and
6.84% and mature within three to seven years. Interest on the TFFC-98 notes is
payable monthly.
Convertible Subordinated Notes
In April 1997, the Company issued convertible subordinated notes with an
aggregate principal amount of $45,000 bearing interest at 6.85% per annum due
2007. At a conversion price of $27.96 per share, the convertible subordinated
notes are convertible into 1,609,436 shares of Class A common stock.
Concurrent with the closing of Ryder TRS in June 1998, $80,000 of 7.00%
convertible subordinated notes was exchanged for 4,305,814 shares of Class A
common stock, including 319,768 shares issued in lieu of interest payments which
the holders of the convertible subordinated notes forfeited as a result of the
early conversion.
Vehicle Obligations
Vehicle obligations consist of outstanding lines of credit to purchase
rental vehicles and retail car sales inventory. Collateralized lines of credit
at December 31, 1998, consist of $126,416 for rental vehicles and approximately
$58,880 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.
Vehicle obligations relating to the rental fleet are generally amortized
over 5 to 15 months with monthly principal payments ranging from 2.0% to 3.0% of
the capitalized vehicle cost. When rental vehicles are sold, the related unpaid
obligation is due. Interest payments for rental fleet facilities are due monthly
at annual interest rates ranging from 6.9% to 8.0% at December 31, 1998.
Management expects vehicle obligations will generally be repaid within one year
with proceeds received from either the repurchase of the vehicles by the
manufacturers in accordance with the terms of the repurchase programs or from
the sale of the vehicles.
18
<PAGE> 19
Foreign Notes
The foreign notes primarily provide financing for vehicle purchases and the
funding of working capital. At December 31, 1997 and 1998, approximately $64,885
and $101,471 respectively, relates to vehicle debt, while $1,896 and $1,288
respectively, relates to the funding of working capital and various other debt.
The foreign notes are largely secured by vehicles, bear interest at rates
ranging from 4.05% to 11.20% per annum and mature from 1999 through 2003.
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 $300,000
to $550,000. This facility requires monthly interest payments on the outstanding
balance at a rate based on either LIBOR plus 1.75% or prime plus 0.75% (8.50% at
December 31, 1998) and expires in 2003. 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 December 31, 1998, the Company had $378,935 in letters of credit
and $50,000 in working capital borrowings outstanding under this facility.
Note Payable to Vendor
The note payable to vendor related to the Company's license agreement for
the reservation system and associated applications and databases and was paid in
full in November 1998.
Other Notes
The Company and its subsidiaries have $29,865 of debt outstanding under
various other credit facilities which are used primarily to provide working
capital and finance operating activities.
Schedule of aggregate maturities of notes payable at December 31, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- - ------------------------ ----------
<S> <C>
1999..................................................... $1,777,036
2000..................................................... 7,112
2001..................................................... 698,656
2002..................................................... 559,098
2003..................................................... 393,757
Thereafter............................................... 199,436
----------
$3,635,095
==========
</TABLE>
9. COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY
Proceeds from the Company obligated mandatorily redeemable securities of
subsidiary ("trust preferred securities"), which are convertible preferred
stock, were used by the Company's subsidiary to invest in subordinated
debentures of the Company, which represents substantially all of the
subsidiary's assets. The Company ultimately used the proceeds to fund the
redemption of certain of the Company's outstanding indebtedness. The Company has
issued a subordinated guarantee of the subsidiary's obligations under the trust
preferred securities. The 6,000,000 shares of trust preferred securities issued
and outstanding are reflected in the balance sheet as "Company Obligated
Mandatorily Redeemable Securities of Subsidiary", while dividends are reflected
in the statements of operations as a minority interest captioned as
"Distributions on trust preferred securities".
The trust preferred securities accrue distributions at a rate of 6.25% per
annum, have a liquidation value of $50 per share, are convertible into the
Company's Class A common stock at the rate of 1.5179 shares of Class A common
stock for each share of trust preferred securities and are subject to mandatory
redemption at 101% of the principal amount plus accrued interest upon the
redemption of the underlying
19
<PAGE> 20
debentures due on June 15, 2028. The Company has the right to defer interest
payments due on the subordinated debentures for up to twenty consecutive
quarters, which will also cause a deferral of distributions under the trust
preferred securities. During a deferral period, the distributions will
accumulate and the Company has agreed, among other things, not to declare any
dividends on its capital stock (subject to certain exemptions).
10. RELATED PARTY TRANSACTIONS
The Company leases facilities from an entity owned by certain stockholders.
Operating lease payments for the years ended December 31, 1996, 1997, and 1998,
were $227, $1,414 and $1,766 respectively. The entity assigned lease payments
from the Company to a bank.
At December 31, 1997, the Company had a payable to a stockholder and
director in the amount of $1,500 which was included in notes payable in the
accompanying consolidated balance sheet. The outstanding balance was paid in
full in 1998.
Approximately $19,811 and $554 of cash and cash equivalents are on deposit
with or being held as agent for the Company by a bank at December 31, 1997 and
1998, respectively. A stockholder and director of the Company served on the
bank's board of directors.
A director of the Company is a managing director of Credit Suisse First
Boston Corporation ("CSFBC"), an investment banking firm which periodically
performs services for the Company for which it receives compensation. CSFBC and
its affiliates have provided extensive services to the Company in connection
with certain of the Company's debt facilities, acquisitions and public offerings
of securities. Most recently, during 1998 CSFBC acted as lead underwriter in
connection with the offering of 6.25% trust preferred securities of Budget Group
Capital Trust in June 1998 and served as the Company's financial advisor in
connection with the Company's acquisition of Ryder TRS in June 1998. Fees paid
to CSFBC in 1998 were approximately $25,000.
In connection with BRAC-OPCO franchise acquisition, the Company entered
into a franchise agreement with the seller to pay a royalty of 5.00% of the
monthly gross revenues derived from those operations, as well as the Company's
San Diego operations. BRACC had a similar agreement related to the Los Angeles
airport. A director of the Company is the Chief Executive Officer and a general
partner of the seller. In 1997 and 1998, the Company paid the seller
approximately $6,213 and $7,437, respectively, in royalty fees in accordance
with these agreements.
In December 1998, the Company's executive officers participated in Budget's
Executive Share Purchase Program ("the Program"). Under the Program, executive
officers purchased Class A common stock with funds provided by Key Bank N.A.
("Key Bank"). The Company purchased the Class A common stock on behalf of the
officers in December 1998, amounting to $3,525, prior to the finalization of the
loans and was repaid with the funding of the Key Bank loans in January 1999.
Interest on the loans is due quarterly and paid by the Company to Key Bank and
is to be reimbursed by the officer to the Company from the officer's annual
incentive award. Reimbursement of interest by the officer to the Company will be
forgiven if the price of the Class A common stock or financial results reach
certain performance targets or under other specified circumstances. The Company
has guaranteed the repayment of principal and interest on the loans.
11. LEASES
The Company leases certain revenue earning vehicles and facilities under
operating leases that expire at various dates. Generally, the facility leases
are subject to payment increases based on cost of living indices and require the
Company to pay taxes, maintenance, insurance and certain other operating
expenses. Certain facility leases require the Company to pay fixed amounts plus
contingent rentals based on gross rental revenues, as defined, and gasoline
sales. In addition, the Company guarantees airport commission fees on behalf of
certain licensees.
20
<PAGE> 21
Expense for operating leases and airport concession fees consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Revenue earning vehicles................................ $ 1,555 $ 15,914 $ 36,585
Facilities:
Minimum rentals....................................... 15,403 66,566 80,009
Contingent rentals.................................... 3,353 17,615 38,157
------- -------- --------
Total......................................... $20,311 $100,095 $154,751
======= ======== ========
</TABLE>
Future minimum payments under noncancellable leases and concession
agreements at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- - ------------------------
<S> <C>
1999........................................................ $ 80,434
2000........................................................ 60,529
2001........................................................ 46,999
2002........................................................ 40,882
2003........................................................ 29,746
Thereafter.................................................. 132,765
--------
$391,355
========
</TABLE>
12. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Current:
Federal.................................................. $ 104 $ (11) $ --
State.................................................... 750 502 3,135
Foreign.................................................. -- 816 1,624
Deferred................................................... 4,247 24,518 (4,502)
------ ------- -------
$5,101 $25,825 $ 257
====== ======= =======
</TABLE>
The provision for income taxes differs from the amount computed using the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997 1998
------ ------- ------
<S> <C> <C> <C>
Income tax provision at federal statutory rate.............. $4,356 $19,536 $2,304
Effect of earnings of nontaxable (subchapter S) companies... (87) -- --
Distribution on trust preferred securities.................. -- -- (3,485)
Nondeductible portion of amortization of intangibles........ 306 2,116 2,931
Merger and acquisition costs................................ -- -- 558
State tax provision, net of federal benefit................. 624 876 179
Change in valuation allowance............................... -- 2,361 (2,375)
Other....................................................... (98) 936 145
------ ------- ------
$5,101 $25,825 $ 257
====== ======= ======
</TABLE>
21
<PAGE> 22
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at December 31, relate to the following:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 60,778 $122,624
Estimated self insurance liability........................ 55,358 64,991
Accrued expenses-pension.................................. 8,549 8,953
Accounts receivable, principally due to allowance for
doubtful accounts...................................... 8,570 9,177
Business tax credit carryforwards......................... 7,654 7,654
Foreign tax credit carryforwards.......................... 1,930 3,306
Alternative minimum tax carryforwards..................... 3,907 3,907
Foreign tax assets and net operating loss carryforwards... 2,319 3,799
Non-deductible reserves, accrued expenses and other....... 15,683 5,993
-------- --------
Total gross deferred tax assets................... 164,748 230,404
Less-valuation allowance.......................... (57,186) (56,116)
-------- --------
107,562 174,288
Deferred tax liabilities:
Difference between book and tax bases of revenue earning
vehicles and property and equipment.................... 86,654 86,995
Intangibles............................................... 127,878 123,943
Other..................................................... 3,509 3,469
-------- --------
Total gross deferred tax liabilities.............. 218,041 214,407
-------- --------
Net deferred tax liability........................ $110,479 $ 40,119
======== ========
</TABLE>
The Company has federal and state net operating loss carryforwards
available to offset future taxable income. At December 31, 1998, the Company and
its subsidiaries have federal tax loss carryforwards of approximately $319,425
expiring through December 2013. The Company has recorded a valuation allowance
for a portion of the acquired net operating loss carryforwards and other credit
carryforwards due to the uncertainty of their ultimate realization. Any
subsequently recognized tax benefits attributed to the change in the valuation
allowance will reduce intangibles.
13. PENSION AND OTHER BENEFIT PLANS
Substantially all employees of the United Kingdom and certain employees in
the U.S. are covered under noncontributory pension plans. Plan benefits are
based on final average compensation. The Company's funding policy for the
domestic plan is to contribute the minimum ERISA contribution required under the
projected unit credit actuarial cost method. The domestic defined benefit
pension plan has been suspended. As a result of this suspension, employees earn
no additional benefits under the plan. The domestic plan is supplemented by an
unfunded, nonqualified plan providing benefits (as computed under the benefit
formula) in excess of limits imposed by Federal tax law. The cost of the
supplemental plan was approximately $695 in 1997 and $604 in 1998.
The Company maintains an unfunded, nonqualified plan providing benefits to
certain of its officers, (the "Executive Protection Plan") based on percentage
of final compensation. The cost of the Executive Protection Plan was
approximately $161 in 1997 and $262 in 1998.
The Company also maintains a Savings Plus Plan. Under this plan, an
eligible employee of the Company, or its participating subsidiaries, who has
completed one year of continuous service and enrolls in the plan may elect to
defer from 1% to 15% of specified compensation under a "cash or deferred
arrangement" under Section 401(k) of the Internal Revenue Code, subject to
certain limitations. The Company contributes varying amounts (25% to 75%) on the
first 6% of each participating employee's
22
<PAGE> 23
eligible salary deferrals to various funds established by the plan, plus an
additional contribution at the discretion of the Board of Directors, based on a
percentage of an employee's total cash compensation. The cost of the plan was
approximately $4,025 and $2,049 in 1997 and 1998, respectively.
Each of the Company's domestic defined benefit plan's accumulated benefits
exceed the plan's assets at December 31, 1998. The following table sets forth
the domestic and foreign pension plans' funded status and amounts recognized in
the Company's consolidated financial statements at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------------------ ------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
PLANS PLAN PLANS PLAN
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year........ $ -- $ -- $ 30,389 $ 6,684
Acquisitions................................... 28,896 5,768 -- --
Service cost................................... 48 537 75 1,465
Interest cost.................................. 1,383 394 2,192 678
Benefits paid.................................. (1,274) (164) (1,477) (133)
Actuarial (gain)/loss.......................... 1,336 149 6,174 5,341
-------- ------ -------- -------
Benefit obligation at end of year................ 30,389 6,684 37,353 14,035
-------- ------ -------- -------
Change in plan assets:
Fair value of plan assets at beginning of
year........................................ -- -- 17,220 9,056
Acquisitions................................... 16,183 7,936 -- --
Actual return on plan assets................... 1,600 823 1,180 1,298
Employer contributions......................... 711 461 1,062 481
Benefits paid.................................. (1,274) (164) (1,477) (133)
-------- ------ -------- -------
Fair value of plan assets at end of year....... 17,220 9,056 17,985 10,702
-------- ------ -------- -------
Funded Status.................................... (13,168) 2,372 (19,368) (3,329)
Unrecognized prior service cost.................. 1,080 (3) 1,012 (3)
Unrecognized net (gain)/loss..................... (6,994) 423 (906) 4,983
-------- ------ -------- -------
Prepaid (accrued) pension cost................... $(19,082) $2,792 $(19,262) $ 1,651
======== ====== ======== =======
Components of net periodic pension cost:
Service cost................................... $ 48 $ 537 $ 75 $ 1,465
Interest cost.................................. 1,383 394 2,192 678
Expected return on assets...................... (1,020) (754) (1,442) (795)
Amortization of prior service cost............. 46 -- 68 306
Actuarial (gain)/loss.......................... 491 -- (30) --
-------- ------ -------- -------
Total expense.......................... $ 948 $ 177 $ 863 $ 1,654
======== ====== ======== =======
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation for 1997 and 1998 was 7.00%
and 5.75%, respectively. No compensation increase has been assumed as no
additional benefits will be earned under the domestic plans. The assumed
compensation increase under the Executive Protection Plan for 1997 and 1998 was
5.00% and 6.00% respectively and 4.00% and 6.00% under the foreign plan. The
expected long-term rate of return on plan assets for 1997 and 1998 was 9.50% and
8.50% respectively.
23
<PAGE> 24
Stock Options
On April 25, 1994, the Company adopted the 1994 Incentive Stock Option Plan
(the "ISO Plan") and the 1994 Directors' Stock Option Plan (the "Directors'
Plan"). The Company accounts for these plans under APB Opinion No. 25 under
which no compensation cost has been recognized. Had compensation cost been
determined consistent with SFAS No. 123, the Company's net income (loss) and EPS
would have been changed to the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
------ ------- --------
<S> <C> <C> <C> <C>
Net income (loss) before extraordinary item... As Reported $7,751 $29,774 $ (3,631)
Pro Forma 6,596 25,189 (17,108)
EPS - Basic................................... As Reported 0.72 1.48 (0.12)
Pro Forma 0.61 1.25 (0.53)
EPS - Diluted................................. As Reported 0.70 1.25 (0.12)
Pro Forma 0.60 1.10 (0.53)
</TABLE>
The calculated pro forma compensation cost may not be representative of
that to be expected in future years.
The ISO Plan provides for the issuance of up to 4,500,000 shares of Class A
or Class B common stock to key employees. The ISO Plan stock options may be
either incentive stock options or nonqualified options, vest between 12 and 48
months and expire ten years after the date of grant. The exercise price of
incentive stock options may not be less than the fair market value of the
underlying shares at the date of grant. The exercise price for nonqualified
options may not be less than 85% of the fair market value of the underlying
shares or, if greater, the book value of the underlying shares at the date of
grant.
The Directors' Plan provides for the issuance of shares of Class A common
stock to directors of the Company who are not employees of the Company. The
Directors' Plan stock options are nonqualified, vest six months following the
date of grant and expire ten years after the date of grant. The exercise price
of the nonqualified options under the Directors' Plan is the fair market value
of the underlying shares at the date of grant.
A summary of the status of the Company's two stock option plans at December
31, 1996, 1997 and 1998 and activity during the years then ended is presented in
the table and narrative below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding -- December 31, 1995............................ 319,214 $ 9.88
Granted................................................... 572,916 12.05
Exercised................................................. (16,026) 10.23
Forfeited................................................. (8,600) 11.13
---------
Outstanding -- December 31, 1996............................ 867,504 11.29
Granted................................................... 1,674,480 22.87
Exercised................................................. (547,632) 10.66
Forfeited................................................. (86,290) 19.25
---------
Outstanding -- December 31, 1997............................ 1,908,062 21.27
Granted................................................... 2,090,700 25.99
Exercised................................................. (136,995) 12.68
Forfeited................................................. (224,450) 20.02
---------
Outstanding -- December 31, 1998............................ 3,637,317 24.38
=========
</TABLE>
24
<PAGE> 25
As of December 31, 1998, options for 3,092,317 shares and 545,000 shares of
Class A and Class B common stock, respectively, remained outstanding under the
Company's stock option plans.
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Exercisable at end of year --
Shares............................................... 352,721 326,178 616,350
Weighted average exercise price...................... $ 10.36 $ 13.85 $ 22.51
Weighted average fair value of options granted during
the year............................................. $ 4.89 $ 10.07 $ 15.31
</TABLE>
At December 31, 1998, 644,800, 1,278,260 and 1,203,800 of the options
outstanding have an exercise price of $17.88, $22.38 and $30.88 respectively.
These options have remaining contractual lives of 9.7, 8.3 and 9.2 years,
respectively. Of these options, 0, 340,000 and 90,000 are exercisable,
respectively. The remaining 510,457 options have exercise prices between $9.50
and $36.44, with a weighted average exercise price of $22.30 and a weighted
average remaining contractual life of 8.8 years. Of these options, 186,350 are
exercisable with a weighted average exercise price of $18.71.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model. For options granted under the ISO Plan,
a weighted average risk-free rate of return of 5.42% and an expected life of
three years were assumed for 1996 and 1997 and a life of five years was assumed
for 1998. For options granted under the Directors' Plan, a risk-free rate of
return of 5.50% and an expected life of five years were assumed for 1996 and
1997 and a life of seven years was assumed for 1998. Additionally, for each
option plan there was no expected dividend yield and an expected volatility of
62.9%.
14. COMMITMENTS AND CONTINGENCIES
For many years, Ford has been BRACC's principal supplier of vehicles and
held an equity interest in the Company from the time of the BRACC Acquisition
through October 6, 1997. The number of vehicles purchased from Ford has varied
from year to year. In model year 1998, approximately 70% of BRACC's U.S. vehicle
purchases were comprised of Ford vehicles. Under the terms of the supply
agreement that was entered into concurrently with the BRACC Acquisition, the
Company agreed to purchase or lease Ford vehicles in such a quantity that the
percentage of new Ford vehicles purchased or leased by the Company in the United
States, Canada, and other countries outside the European Union represent 70% of
the total new vehicle acquisitions by the Company, with a minimum quantity of at
least 80,000 vehicles in the United States in each model year. Given the volume
of vehicles purchased from Ford by the Company, shifting significant portions of
the fleet purchases to other manufacturers would require lead time and certain
operational changes. As a result, any inability by Ford to supply the Company
with the planned number and types of vehicles, any significant decline in the
quality and customer satisfaction with respect to Ford vehicles or any failure
of the parties to reach an agreement on the terms of any purchases could have a
material effect on the Company's financial condition and results of operations.
The Company agreed to pay Ford, on September 1, 1998, and on each
anniversary through September 1, 2004, an annual royalty equal to the greater of
(i) one percent of net vehicle revenue of BRACC locations prior to the Budget
Acquisition for the prior model year, or (ii) a specified minimum amount (equal
to $9,900 for the September 1, 1998, annual royalty payment and subject to
adjustment for each annual period thereafter, based upon changes in the consumer
price index). The minimum royalty payable with respect to each model year will
be reduced by a stated amount for each Ford vehicle purchased by the Company and
its affiliates and franchisees in excess of 123,000 Ford vehicles. The aggregate
of all royalties paid to Ford over the term of the agreement is subject to a
limit of $100,000. For the year ended September 1, 1998, no amounts were due to
Ford under this royalty agreement.
Litigation
The Company, through Cruise, was a party to litigation that arose out of a
claim for an alleged wrongful termination of a sublease agreement with one of
its former concession operators. During the fourth quarter of 1997, the Company
took a one-time charge of $10,000, which is included in selling,
25
<PAGE> 26
general and administrative expenses in the accompanying consolidated statements
of operations, to establish an accrual for damages. During 1998, this litigation
was settled for $7,800. No further action is expected on this matter.
The Company terminated the franchise agreement of its franchisee for
Germany based on alleged violations of provisions in the underlying franchise
agreement and ceased to provide services, such as reservations and credit card
processing, effective as of October 23, 1998. Reservations that would have been
transmitted to and serviced by the Company's franchisee in Germany are now being
handled, on an interim basis, by National Car Rental locations in Germany,
pursuant to an agreement between the Company and National Car Rental. The
termination is being contested by the franchisee in the German courts, and a
hearing was held in January 1999. The results of the hearing are expected early
in the second quarter of 1999. The Company intends to replace the current German
franchisee with a new franchisee and/or company owned locations when the pending
legal issues are resolved. Until such time, the Company may experience an
adverse effect on business in, and originating from Germany.
Litigation arising in the normal course of business is pending against the
Company. Management believes that the Company has meritorious defenses to all
significant litigation and that the ultimate outcome of the litigation will not
have a material adverse effect on the Company's consolidated financial position
or results of operations.
Environmental Matters
The Company has recorded amounts, which in management's best estimate, will
be sufficient to satisfy anticipated costs of known remediation requirements. At
December 31, 1998, the Company has accrued $3,232 for estimated environmental
remediation costs and expects to expend approximately $2,000 during 1999.
Amounts receivable from third parties for reimbursement of remediation
expenditures are not significant.
Due to factors such as continuing changes in the environmental laws and
regulatory requirements, the availability and application of technology, the
identification of presently unknown remediation sites and changes in the extent
of expected remediation efforts, estimated costs for future environmental
compliance and remediation are subject to uncertainty and it is difficult to
predict the amount or timing of future remediation requirements. The Company
does not expect such future costs to have a material adverse effect on the
Company's consolidated financial position or results of operations.
15. FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosure about Fair Value of Financial Instruments". The estimated fair value
amounts are determined by the Company using available market information and
appropriate valuation methodologies. However, considerable judgment is required
in interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amount.
The Company acquired existing interest rate collars in conjunction with the
Ryder TRS acquisition. Under these agreements, the Company will receive payments
in the event that the LIBOR based interest rate exceeds 6.30% and will make
payments in the event the LIBOR based interest rate falls below 5.45%. At
December 31, 1998, the Company had two interest rate collar agreements
outstanding in the notional amount of $125,000. The carrying value of these
agreements at December 31, 1998, approximated fair market value as the terms are
representative of those currently available to the Company.
26
<PAGE> 27
Cash and Cash Equivalents, Restricted Cash, Trade and Vehicle Receivables and
Accounts Payable, Accrued and Other Liabilities
The carrying amounts of these financial assets and liabilities at December
31, 1997 and 1998, approximate fair value because of the short maturity of these
instruments.
Notes Payable
The carrying amount of a portion of the Company's notes payable
approximates fair market value at December 31, 1997 and 1998, since the debt is
at floating interest rates. The carrying amount of the Company's fixed-rate
notes payable approximates fair value at December 31, 1997 and 1998, due to the
recent issuance of such debt or because such notes do not have terms that differ
materially from those currently available to the Company.
16. SUPPLEMENTAL CASH FLOW DISCLOSURES
In 1996, the Company issued 272,727 shares of Class A common stock with a
value of $2,727 and notes payable of $10,000 for the 1996 acquisitions.
In 1997, the Company issued 4,746,167 shares of Class A common stock with a
value of $114,274 for the 1997 acquisitions. These amounts reflect the
conversion of 4,500 shares of Series A convertible, non-voting preferred stock
into 4,500,000 shares of Class A common stock which were sold by the selling
stockholder in October 1997.
In 1998, the Company issued 5,716,800 shares of Class A common stock with a
value of $179,497 for the 1998 acquisitions.
The Company paid interest of $34,333, $109,476 and $199,349 in 1996, 1997
and 1998, respectively.
Income taxes of $1,017, $1,796 and $4,014 were paid in 1996, 1997 and 1998,
respectively.
On occasion, the Company acquires goods and services in exchange for
revenue earning vehicles. During 1997 and 1998, revenue earning vehicles in the
amount of $2,100 and $5,587, respectively, were exchanged for goods and
services.
The early extinguishment of the guaranteed senior notes and the Ryder TRS
10% senior subordinated notes resulted in the pretax write-off of deferred
financing fees of $18,264. This has been included in the extraordinary item, net
of tax benefits, in the accompanying statements of operations.
Concurrent with the closing of Ryder TRS, $80,000 of 7.00% convertible
subordinated notes were exchanged for 4,305,814 shares of Class A common stock,
including 319,768 shares issued in lieu of future interest payments which the
holders of the notes forfeited as a result of the early conversion. The 319,768
shares issued to induce conversion of the notes were recorded at their fair
value of $8,854 and reflected in debt extinguishment costs in the accompanying
statements of operations.
17. SEGMENT INFORMATION
The Company is engaged in the business of the daily rental of vehicles,
principally cars, trucks, and passenger vans, and the retail sale of used
vehicles. Segments are determined by product line and business activity.
The Car Rental segment includes BRACC, Budget Rent a Car International Inc.
(BRACII), Premier and VPSI.
The Truck Rental and Sales segment includes BRACC, Ryder TRS and Cruise.
27
<PAGE> 28
Retail Car Sales is comprised of Budget Car Sales and car sales locations
in Hawaii.
Segment information for the year ended December 31, 1996, is as follows:
<TABLE>
<CAPTION>
VEHICLE CORPORATE AND
RENTAL RETAIL CAR SALES ELIMINATIONS CONSOLIDATED
-------- ---------------- ------------- ------------
<S> <C> <C> <C> <C>
Operating revenue..................... $313,688 $134,120 -- $447,808
Depreciation and amortization......... 75,496 1,482 175 77,153
Operating income (loss)............... 47,877 1,857 (2,133) 47,601
Income (loss) before income taxes..... 15,452 409 (3,009) 12,852
</TABLE>
<TABLE>
<CAPTION>
DOMESTIC FOREIGN CONSOLIDATED
-------- ------- ------------
<S> <C> <C> <C>
Operating revenue....................................... $447,808 -- $447,808
Long-lived assets....................................... 109,750 -- 109,750
</TABLE>
Segment information for the year ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
TRUCK CORPORATE
CAR RENTAL AND RETAIL CAR AND
RENTAL SALES SALES ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenue............... $1,014,797 $215,943 $239,355 $(58,659) $1,411,436
Depreciation and amortization... 263,747 43,986 283 7,626 315,642
Operating income (loss)......... 147,521 29,543 (2,405) (3,663) 170,996
Income (loss) before income
taxes......................... 54,812 11,555 (1,925) (8,843) 55,599
</TABLE>
<TABLE>
<CAPTION>
DOMESTIC FOREIGN CONSOLIDATED
---------- -------- ------------
<S> <C> <C> <C>
Operating revenue................................... $1,300,378 $111,058 $1,411,436
Long-lived assets................................... 684,691 8,569 693,260
</TABLE>
Segment information for the year ended December 31, 1998, is as follows:
<TABLE>
<CAPTION>
TRUCK CORPORATE
CAR RENTAL AND RETAIL CAR AND
RENTAL SALES SALES ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenue............... $1,527,471 $613,671 $547,690 $(72,633) $2,616,199
Depreciation and amortization... 416,474 116,248 5,213 16,801 554,736
Operating income (loss)......... 171,479 86,778 (22,459) (29,522) 206,276
Income (loss) before income
taxes......................... 31,405 32,627 (23,168) (34,281) 6,583
</TABLE>
<TABLE>
<CAPTION>
DOMESTIC FOREIGN CONSOLIDATED
---------- -------- ------------
<S> <C> <C> <C>
Operating revenue................................... $2,440,468 $175,731 $2,616,199
Long-lived assets................................... 1,110,067 19,775 1,129,842
</TABLE>
Truck rental and sales financial data for the year ended December 31, 1996
is not available.
The vehicle rental financial information for the year ended December 31,
1996 is comparable to combined Car Rental and Truck Rental and Sales for the
years ended December 31, 1997 and 1998.
Foreign operations include rental and royalty revenues primarily from
Europe, Australia and New Zealand.
28
<PAGE> 29
18. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table is a summary of quarterly information for the years
ended December 31, 1997 and 1998 (in thousands except per share data).
<TABLE>
<CAPTION>
1997 1998
----------------------------------------- -----------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
------------------ ------------------
MARCH MARCH
31 JUNE 30 SEPT. 30 DEC. 31 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue..................... $116,338 $332,144 $524,852 $438,102 $455,985 $614,352 $856,569 $689,293
Operating income (loss)............... 4,003 33,837 96,498 36,658 34,179 60,850 157,039 (45,792)
Net income (loss) before extraordinary
item................................ (3,301) 4,563 30,894 (2,382) (3,421) 4,751 61,276 (66,237)
Average shares outstanding -- basic... 12,875 18,765 21,579 27,023 27,445 29,499 35,942 35,928
Earnings (loss) per
share -- basic(1)................... (0.26) 0.24 1.43 (0.09) (0.12) 0.16 1.70 (1.84)
Average shares
outstanding -- diluted.............. 12,875 22,596 32,554 28,038 27,445 30,243 47,016 35,928
Earnings (loss) per share -- diluted
(1)................................. (0.26) 0.20 0.99 (0.08) (0.12) 0.16 1.38 (1.84)
Market price of stock(2)
High................................ 29.50 34.875 37.00 37.75 39.00 39.00 33.125 25.00
Low................................. 16.00 19.00 28.188 32.50 30.00 26.875 17.00 11.063
</TABLE>
- - ---------------
(1) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share do not
equal the total for the year.
(2) On March 16, 1999, (i) the closing sale price of the Class A common stock as
reported on the New York Stock exchange was $11.375 per share and (ii) there
were approximately 299 holders of record of the Class A common stock and
three holders of record of the Class B common stock.
As of April 17, 1997, the Company's Class A common stock has been listed on
the New York Stock Exchange under the symbol "BD". Prior to such date, the
Company's Class A common stock was traded in the NASDAQ National Market under
the symbol "TBUD". The table details the high and low bid information for the
Class A common stock as reported by the NASDAQ National Market or the high and
low sales prices for the Class A common stock as reported by the New York Stock
Exchange, as the case may be, for the periods indicated.
The Company has never paid any cash dividends on its common stock, and the
Board of Directors currently intends to retain all earnings for use in the
Company's business for the foreseeable future. Any future payment of dividends
will depend upon the Company's results of operations, financial condition, cash
requirements and other factors deemed relevant by the Board of Directors.
29
<PAGE> 30
PRO FORMA FINANCIAL INFORMATION
The Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1998, is based on the audited historical consolidated financial
statements of Budget Group and the unaudited historical financial statements of
Ryder TRS for the five months ended May 31, 1998, adjusted to give effect to (i)
the Ryder TRS acquisition and (ii) the recapitalization transactions described
below that occurred concurrently with the Ryder TRS acquisition as if they had
occurred on January 1, 1998.
As consideration for our purchase of Ryder TRS, Ryder TRS stockholders
received $125.0 million in cash, 3,455,206 shares of Class A common stock and
warrants to purchase shares of Class A common stock with a value of up to $19.0
million in return for 100% of the outstanding Ryder TRS stock. We also assumed
Ryder TRS fleet debt of $347.0 million, as well as public notes of $175.0
million in connection with the Ryder TRS Acquisition.
The recapitalization transactions consisted of the following: (i) the
amendment and restatement of our existing $300.0 million secured revolving
credit facility to increase the facility to $550.0 million; (ii) the conversion
of $80.0 million of Series A convertible subordinated notes into 4,305,814
shares of Class A common stock, including 319,768 shares issued in lieu of
interest payments which the holders of the Series A notes agreed to forego as a
result of the early conversion; (iii) the redemption of $165.0 million of our
guaranteed senior notes; (iv) the redemption of $175.0 million of Ryder TRS's
outstanding 10% senior subordinated notes due 2006; (v) the issuance of
6,000,000 convertible preferred shares of Budget Group Capital Trust and the
application of the net proceeds therefrom; (vi) the private placement of $1.1
billion of MTNs (the "TFFC-98 Notes") and the application of the net proceeds
therefrom; and (vii) the write-off of loan costs related to converted or retired
debt.
The Pro Forma Consolidated Statement of Operations does not purport to represent
what our results of operations would have been had the Ryder TRS acquisition and
the recapitalization transactions occurred on the date indicated or to predict
our results of operations in the future. This statement is qualified in its
entirety by, and should be read in conjunction with, the historical financial
statements of each of Budget Group and Ryder TRS and the notes thereto.
The Pro Forma Consolidated Statement of Operations has been prepared using
the purchase method of accounting, whereby the total cost of the Ryder TRS
acquisition was allocated to the tangible and intangible assets acquired and
liabilities assumed based upon their respective fair values at the effective
date of the Ryder TRS acquisition. Such allocations have been based on studies
and valuations which have not yet been completed. Accordingly, the allocations
reflected in the Pro Forma Consolidated Statement of Operations are preliminary
and subject to revision. However, we do not expect material changes to the
allocation of the purchase price.
The Pro Forma Consolidated Statement of Operations gives effect only to the
adjustments set forth in the accompanying notes and does not reflect any other
benefits anticipated by management as a result of the Ryder TRS acquisition, the
recapitalization transactions and the implementation of our
business strategy.
30
<PAGE> 31
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS BUDGET GROUP
HISTORICAL FOR RYDER TRS FOR THE ADJUSTMENTS FOR
BUDGET HISTORICAL ACQUISITION RYDER TRS RECAPITALIZATION PRO FORMA
GROUP RYDER TRS TRANSACTION ACQUISITION TRANSACTIONS BUDGET GROUP
---------- ---------- -------------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenue:
Vehicle rental revenue... $1,934,750 $196,762 $ -- $2,131,512 $ -- $2,131,512
Retail vehicle sales
revenue................ 583,252 -- -- 583,252 -- 583,252
Royalty fees and other... 98,197 -- -- 98,197 -- 98,197
---------- -------- ------- ---------- -------- ----------
Total operating
revenue.......... 2,616,199 196,762 -- 2,812,961 -- 2,812,961
---------- -------- ------- ---------- -------- ----------
Operating costs and
expenses:
Depreciation -- vehicle... 500,210 29,857 -- 530,067 -- 530,067
Costs of retail vehicle
sales.................. 524,907 -- -- 524,907 -- 524,907
Direct vehicle and
operating.............. 815,748 73,180 -- 888,928 -- 888,928
Selling, general and
administrative......... 498,075 92,441 (354)(a) 590,162 -- 590,162
Restructuring and
pooling................ 16,457 -- -- 16,457 -- 16,457
Amortization and non-
vehicle depreciation... 54,526 4,979 1,805(b) 61,310 -- 61,310
---------- -------- ------- ---------- -------- ----------
Total operating
costs and
expenses......... 2,409,923 200,457 1,451 2,611,831 -- 2,611,831
---------- -------- ------- ---------- -------- ----------
Operating income (loss)... 206,276 (3,695) (1,451) 201,130 -- 201,130
---------- -------- ------- ---------- -------- ----------
Other expenses:
Vehicle interest
expense................ 188,164 14,450 -- 202,614 (3,508)(d),(e) 199,106
Non-vehicle interest
expense................ 13,423 -- -- 13,423 (10,212)(f) 3,211
Interest income --
restricted cash........ (11,348) -- -- (11,348) 1,805(g) (9,543)
Debt extinguishment
costs.................. 9,454 -- -- 9,454 (9,454)(h) --
---------- -------- ------- ---------- -------- ----------
199,693 14,450 -- 214,143 (21,369) 192,774
---------- -------- ------- ---------- -------- ----------
Income (loss) before
taxes.................... 6,583 (18,145) (1,451) (13,013) 21,369 8,356
Provision (benefit) for
income taxes............. 257 (6,854) 135(c) (6,462) 4,802(c) (1,660)
Distribution on
convertible preferred
securities............... 9,957 -- -- 9,957 8,733(i) 18,690
---------- -------- ------- ---------- -------- ----------
Net income (loss)......... $ (3,631) $(11,291) $(1,586) $ (16,508) $ 7,834 $ (8,674)
========== ======== ======= ========== ======== ==========
Weighted average shares
outstanding -- basic..... 32,067 33,667 35,660
========== ========== ==========
Basic EPS................. $ (0.12) $ (0.49) $ (0.24)
========== ========== ==========
Weighted average shares
outstanding -- diluted... 32,067 33,667 35,660
========== ========== ==========
Diluted EPS............... $ (0.12) $ (0.49) $ (0.24)
========== ========== ==========
</TABLE>
31
<PAGE> 32
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
(a) Reflects the elimination of management fees incurred by Ryder under an
agreement terminated in connection with the Ryder TRS acquisition.
(b) Reflects the elimination of $2,734 of amortization of Ryder's existing
intangibles and records an increase in amortization of $4,539 on the net
intangibles established through purchase accounting adjustments.
(c) Reflects a tax provision attributable to the combined group on a pro
forma basis.
(d) Reflects the decrease in vehicle interest expense attributable to:
<TABLE>
<S> <C>
Elimination of interest on Ryder TRS's 10% senior
subordinated notes due 2006............................... $ 8,679
Interest savings on the CP Facility partially refinanced
through the issuance of the TFFC-98 Notes................. 18,539
Interest savings on Ryder TRS's commercial paper facility
refinanced through the issuance of the TFFC-98 Notes...... 7,617
Elimination of amortization of loan costs on retired debt... 1,606
-------
Decrease in vehicle interest expense...................... $36,441
=======
</TABLE>
(e) Reflects the increase in vehicle interest expense attributable to:
<TABLE>
<S> <C>
Interest expense related to the TFFC-98 Notes............... $31,590
Amortization of costs incurred in connection with the
TFFC-98 Notes and the increase in the secured revolving
credit facility........................................... 1,192
Amortization of costs incurred in connection with the
issuance of the convertible preferred securities of Budget
Group Capital Trust....................................... 151
-------
Increase in vehicle interest expense...................... $32,933
=======
</TABLE>
(f) Reflects the decrease in non-vehicle interest expense attributable to:
<TABLE>
<S> <C>
Elimination of interest on Series A notes due to
conversion................................................ $ 2,608
Elimination of interest on the guaranteed senior notes...... 7,355
Elimination of amortization of loan costs on retired debt... 249
-------
Decrease in non-vehicle interest expense.................. $10,212
=======
</TABLE>
(g) Reflects the reduction in interest income due to increased utilization
of existing medium term notes.
(h) Reflects the elimination of the debt extinguishment costs.
(i) Reflects the accrual of distributions on the convertible preferred
securities of Budget Group Capital Trust.
32
<PAGE> 33
SIGNATURE
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 hereunto duly authorized.
BUDGET GROUP, INC.
(Registrant)
Date: March 22, 1999 By: /s/ THOMAS L. KRAM
-------------------------------------
Thomas L. Kram
Vice President - Controller
33
<PAGE> 34
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- - ----------- ------------------------------------------------
<S> <C>
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule (for SEC purposes only)
</TABLE>
34
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference of our report included in this Current Report on
Form 8-K, into Budget Group, Inc.'s previously filed Registration Statement
File No.'s 333-41093, 333-42327, 333-47079, 333-49679, 333-49819, 333-58477,
333-59049, 333-59385 and 333-61429.
/s/ Arthur Andersen LLP
March 22, 1999,
Orlando, Florida
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BUDGET GROUP, INC. FOR THE YEAR ENDED DECEMBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 557,651
<SECURITIES> 0
<RECEIVABLES> 425,183
<ALLOWANCES> 0<F1>
<INVENTORY> 2,920,211
<CURRENT-ASSETS> 3,903,045
<PP&E> 229,318
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 5,134,071
<CURRENT-LIABILITIES> 557,226
<BONDS> 3,635,095
291,160
0
<COMMON> 360
<OTHER-SE> 650,230
<TOTAL-LIABILITY-AND-EQUITY> 5,134,071
<SALES> 2,616,199
<TOTAL-REVENUES> 2,616,199
<CGS> 524,907
<TOTAL-COSTS> 1,885,016
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 199,693
<INCOME-PRETAX> 6,583
<INCOME-TAX> 257
<INCOME-CONTINUING> (3,631)
<DISCONTINUED> 0
<EXTRAORDINARY> (45,296)
<CHANGES> 0
<NET-INCOME> (48,927)
<EPS-PRIMARY> (1.53)
<EPS-DILUTED> (1.53)
<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>
