<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934....................FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NO.: 0-23962
BUDGET GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 59-3227576
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
125 BASIN STREET,
SUITE 210,
DAYTONA BEACH, FL 32114
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (904) 238-7035
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
37,410,672 shares of common stock were outstanding as of May 8, 2000, comprised
of 35,474,072 shares of the registrant's Class A common stock, par value $0.01,
and 1,936,600 shares of the registrant's Class B common stock, par value $0.01.
The Exhibit Index, filed as a part of this report, appears on page 16.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
-------
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (unaudited)
and December 31, 1999......................................... 3
Consolidated Statements of Operations for the Three-Month
Periods Ended March 31, 2000 and 1999 (unaudited)............. 4
Consolidated Statement of Changes in Stockholders' Equity
for the Three-Month Period Ended March 31, 2000 (unaudited)... 5
Consolidated Statements of Cash Flows for the Three-Month
Periods Ended March 31, 2000 and 1999 (unaudited)............. 6
Notes to Unaudited Consolidated Financial Statements............ 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk...... 15
PART II. Other Information
Item 1. Legal Proceedings............................................... 16
Item 2. Changes in Securities and Use of Proceeds....................... 16
Item 3. Default Upon Senior Securities.................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............. 16
Item 5. Other Information............................................... 16
Item 6. Exhibits and Reports on Form 8-K................................ 16
Signature Page.............................................................. 17
</TABLE>
2
<PAGE> 3
PART I. -- FINANCIAL STATEMENTS
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
ITEM 1. CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 17,107 $ 56,886
Restricted cash............................................. 5,048 1,074
Trade and vehicle receivables, net.......................... 381,851 416,218
Revenue earning vehicles, net............................... 3,490,481 3,179,603
Property and equipment, net................................. 201,761 215,530
Prepaid expenses and other assets........................... 302,632 226,190
Intangibles, including goodwill, net........................ 856,710 852,789
Net assets of discontinued operations....................... 137,119 134,228
---------- ----------
Total assets.............................................. $5,392,709 $5,082,518
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable............................................... $3,889,147 $3,637,710
Accounts payable, accrued and other liabilities............. 693,495 585,068
Deferred income taxes....................................... 757 757
---------- ----------
Total liabilities......................................... 4,583,399 4,223,535
COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF
SUBSIDIARY................................................ 291,535 291,460
---------- ----------
STOCKHOLDERS' EQUITY
Common stock................................................ 374 373
Additional paid-in capital.................................. 629,010 646,641
Foreign currency translation adjustment..................... (2,676) (446)
Accumulated deficit......................................... (107,162) (77,217)
Treasury stock.............................................. (1,771) (1,828)
---------- ----------
Total stockholders' equity................................ 517,775 567,523
---------- ----------
Total liabilities and stockholders' equity................ $5,392,709 $5,082,518
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE-MONTH
PERIODS ENDED
MARCH 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
OPERATING REVENUE
Vehicle rental revenue.................................... $541,357 $469,467
Royalty fees and other.................................... 23,362 24,368
-------- --------
Total operating revenue................................ 564,719 493,835
-------- --------
OPERATING EXPENSES
Direct vehicle and operating.............................. 243,680 204,038
Depreciation -- vehicle................................... 142,882 128,827
Selling, general and administrative....................... 154,312 131,797
Amortization and non-vehicle depreciation................. 20,319 16,493
-------- --------
Total operating expense................................ 561,193 481,155
-------- --------
Operating income............................................ 3,526 12,680
-------- --------
Other expense:
Vehicle interest, net..................................... 48,788 42,299
Other interest, net....................................... 9,939 471
-------- --------
Total other expense, net............................... 58,727 42,770
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES.............................................. (55,201) (30,090)
Benefit for income taxes.................................... (29,944) (14,995)
Distributions on trust preferred securities................. 4,688 4,623
-------- --------
LOSS FROM CONTINUING OPERATIONS............................. (29,945) (19,718)
LOSS FROM DISCONTINUED OPERATIONS
(Net of benefit for income taxes)......................... -- (3,332)
-------- --------
NET LOSS.................................................... $(29,945) $(23,050)
======== ========
EARNINGS PER SHARE
Basic and diluted:
Loss from continuing operations........................ $ (0.80) $ (0.55)
Loss from discontinued operations (Net of benefit for
income taxes)......................................... -- (0.09)
-------- --------
Net loss............................................... $ (0.80) $ (0.64)
======== ========
Weighted average number of shares outstanding basic and
diluted................................................... 37,248 35,856
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN TRANSLATION ACCUMULATED TREASURY STOCKHOLDERS'
STOCK CAPITAL ADJUSTMENT DEFICIT STOCK EQUITY
------ ---------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999..... $373 $646,641 $ (446) $ (77,217) $(1,828) $567,523
Comprehensive income:
Net income..................... -- -- -- (29,945) --
Foreign currency translation... -- -- (2,230) -- --
Total comprehensive income....... (32,175)
Warrant repurchase............... -- (17,573) -- -- -- (17,573)
Make-whole payments.............. 1 (58) -- -- 57 --
---- -------- ------- --------- ------- --------
Balance at March 31, 2000........ $374 $629,010 $(2,676) $(107,162) $(1,771) $517,775
==== ======== ======= ========= ======= ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
BUDGET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE-MONTH PERIODS
ENDED MARCH 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES:
Net loss.................................................... $ (29,945) $ (23,050)
Loss from discontinued operations........................... -- 3,332
----------- -----------
Loss from continuing operations............................. (29,945) (19,718)
Adjustments to reconcile loss from continuing operations to
net cash provided by continuing operating activities
Depreciation and amortization............................... 163,201 145,320
Changes in operating assets and liabilities, net of effects
from acquisitions
Trade and vehicle receivables............................. 34,367 112,401
Prepaid expenses and other assets......................... (1,791) 3,274
Accounts payable, accrued and other liabilities........... 34,177 (20,025)
----------- -----------
Total adjustments...................................... 229,954 240,970
----------- -----------
Net cash provided by continuing operating activities...... 200,009 221,252
----------- -----------
CASH FLOWS FROM CONTINUING INVESTING ACTIVITIES:
Change in restricted cash balance........................... (3,974) 329,018
Proceeds from sale of revenue earning vehicles.............. 608,804 535,509
Purchases of revenue earning vehicles....................... (1,058,696) (1,053,938)
Proceeds from the sale of property and equipment............ 3,443 1,578
Purchases of property and equipment......................... (14,527) (20,665)
Payment for acquisitions, net of cash acquired.............. (5,714) (1,017)
----------- -----------
Net cash used in continuing investing activities.......... (470,664) (209,515)
----------- -----------
CASH FLOWS FROM CONTINUING FINANCING ACTIVITIES:
Net decrease in vehicle obligations......................... (13,920) (5,119)
Net increase (decrease) in commercial paper................. 265,062 (75,845)
Proceeds from other notes payable........................... 935 7,240
Principal payments on other notes payable................... (640) (718)
Warrant repurchase.......................................... (17,573) --
Proceeds from other equity transactions, net................ -- 1,059
----------- -----------
Net cash provided (used) by continuing financing
activities............................................. 233,864 (73,383)
----------- -----------
Net cash provided (used) by discontinued operations......... (2,891) 1,027
----------- -----------
Effect of exchange rate changes on cash..................... (97) (206)
----------- -----------
Net decrease in cash and cash equivalents................... (39,779) (60,825)
Cash and cash equivalents, beginning of period.............. 56,886 124,011
----------- -----------
Cash and cash equivalents, end of period.................... $ 17,107 $ 63,186
=========== ===========
</TABLE>
6
<PAGE> 7
BUDGET GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Budget
Group, Inc. (the "Company") have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The Company
believes that the accompanying consolidated financial statements contain all
adjustments (consisting of normal, recurring adjustments) that, in the opinion
of management, are necessary to present fairly the Company's consolidated
financial condition, results of operations and cash flows for the periods
presented.
It is suggested that these consolidated financial statements be read in
conjunction with the financial statements and the notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for the full year ending December 31, 2000.
In December 1999, the Company implemented formal plans to dispose of its
retail car sales segment and VPSI, Inc. ("VPSI") and Cruise America, Inc.
("Cruise"), respectively. The Company has provided for losses during the phase
out period and on the disposal of the operations and has segregated net assets
from these operations in the accompanying consolidated financial statements.
Certain amounts in the 1999 consolidated financial statements have been
reclassified to conform with the current year presentation.
2. ACQUISITIONS
The Company completed small acquisitions of Budget Rent a Car franchises
and local market car rental companies through March 31, 2000. These acquisitions
are not material either individually or in the aggregate and the Company does
not expect them to have a significant impact on its financial position or full
year results of operations. The acquisitions are located in Kentucky and
England.
3. DISPOSITIONS
On March 17, 2000, the Company completed the sale of its Licensee Lease
Program for approximately $37.7 million. The sales price approximated the
Company's net investment.
On April 20, 2000, the Company sold the Warren Wooten Ford, Inc. ("Wooten
Ford") dealership for approximately $15.0 million and on April 27, 2000, the
Company completed the sale of the Paul West Ford, Inc. dealership for
approximately $17.7 million. The sales prices of these dealerships approximated
the estimates used to recognize the expected loss from disposal of business
segments recorded in 1999.
The sale of the previously mentioned non-core businesses reflects the
Company's plans to focus on the car and truck rental businesses.
4. NOTES PAYABLE
On February 24, 2000, the Company entered into a $270.0 million seasonal
funding facility ("Bridge Facility") that expires on June 30, 2000. This
facility is utilized to finance the acquisitions of vehicles during the peak
buying season. On March 31, 2000, there was a total of $25.0 million outstanding
under the Bridge Facility with an interest rate of 6.14%.
7
<PAGE> 8
5. MAKE-WHOLE PAYMENTS / WARRANT PAYMENTS
The Company is obligated to deliver a make-whole payment in connection with
certain acquisitions, if the price of the stock issued in a purchase falls below
a specified price during the measurement periods.
In January 2000, the Company issued 56,740 new shares of Class A common
stock and 5,007 treasury shares with a value of $0.5 million in make whole
payments related to the Wooten Ford dealership acquisition consummated in June
1998.
In March 2000, the Company paid approximately $17.6 million to repurchase
warrants to purchase common stock from the former shareholders of Ryder TRS and
expects to pay an additional $0.2 million upon receipt of final documentation
from the warrant holders.
In April 2000, the Company entered into a series of agreements to pay the
final payment of the Ryder TRS make-whole obligation for $30.4 million in cash
and will be recorded as a charge to additional paid-in-capital when paid.
Payments of approximately $12.0 million were made in April and May, 2000 and the
final payment of $18.4 million is expected to be paid on July 3, 2000. In the
event the final payment is not made by July 3, 2000, the Company's total
obligation would revert to approximately $40.5 million payable, at the counter
party's option, in cash or an equivalent value in common stock at the lower of
$6.00 or the market price on July 3, 2000.
6. EARNINGS PER SHARE
Basic and diluted loss per share was calculated by dividing net loss by the
weighted average number of common shares outstanding during the period. The
diluted loss per share is equal to basic loss per share due to the anti-dilutive
effect (i.e. the effect of reducing the net loss per share) of the Company's
convertible securities and stock options.
7. RESTRUCTURING
The Company recorded a restructuring charge of approximately $14.9 million
in December 1998. This amount related primarily to closing of vehicle rental and
car sales locations and centralization of certain finance and administration
functions of the Company (the "Restructuring"). At March 31, 2000, all of the
employees affected have been terminated and the Company has accruals remaining
related to the Restructuring of $4.9 million. During the three-month period
ended March 31, 2000 approximately $0.3 million has been paid or utilized.
8. FINANCIAL INSTRUMENTS
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities"
establishes accounting and reporting standards for derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. SFAS No. 137 "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of Financial Accounting
Standards Board ("FASB") Statement No. 133 -- an Amendment of FASB Statement No.
133" defers the effective date of SFAS No. 133 until January 2001 for the
Company. It requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. Based on its current limited use of derivatives, the
Company expects no material impact on its financial condition or results of
operations upon adoption of SFAS No. 133.
8
<PAGE> 9
9. BUSINESS SEGMENTS
The Company is engaged in the business of the daily rental of vehicles,
principally cars, trucks and passenger vans. Segments are determined by product
line and business activity.
Segment information for the periods ended March 31, 2000 and 1999,
respectively, are:
<TABLE>
<CAPTION>
THREE-MONTH PERIODS
ENDED MARCH 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Revenue
Car Rental -- North America............................... $373,388 $326,822
-- International............................... 68,377 49,699
Truck Rental.............................................. 150,006 137,788
Eliminations.............................................. (27,052) (20,474)
-------- --------
Total revenue.......................................... $564,719 $493,835
======== ========
Operating income(loss)
Car Rental -- North America............................... $ 37,577 $ 22,509
-- International............................... (19,690) (163)
Truck Rental.............................................. (8,345) (4,971)
Corporate Overhead........................................ (6,016) (4,695)
-------- --------
Total operating income................................. $ 3,526 $ 12,680
======== ========
</TABLE>
10. SIGNIFICANT NON-CASH TRANSACTIONS
On March 6, 2000 the Company entered into a ten year marketing agreement
with Homestore.com whereby the Company received stock with a market value of
approximately $70.0 million and provides for various services including
marketing, exclusive branding and online reservations. The investment is
included in prepaid expenses and other assets. In addition, approximately $70.0
million of deferred income has been recorded and included in accounts payable
and accrued and other liabilities. The deferred income will be recognized on a
straight-line basis over the 10 year life of the agreement. During the first 30
months of the agreement, the Homestore.com stock is subject to certain put
provisions that essentially guarantees the minimum value of the stock to be no
less than approximately $70.0 million. In addition, the maximum value is subject
to certain limitations during the first 24 months. Therefore, no temporary
market value declines related to the stock will be recognized by the Company
until after the put period has lapsed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
All amounts relate to continuing operations unless otherwise noted.
Prior to the acquisition of Budget Rent a Car Corporation ("BRACC"), the
Company was the largest Budget franchisee in the United States and was one of
the largest independent retailers of late model automobiles in the United
States. In 1994, the Company embarked on a strategy to significantly expand its
Budget franchise base and to develop a branded retail car sales operation within
its Budget franchise territories. Beginning in 1996, we began acquiring and
expanding into other rental related businesses.
In 1999, the Company adopted plans to dispose of its non-core assets,
primarily its car sales segment, Cruise America and VPSI, in order to focus on
car and truck rental. The net income (loss) and net assets to be disposed of for
these non-core assets are included in the accompanying consolidated financial
statements under the headings discontinued operations in the consolidated
statements of operations and net assets of discontinued operations in the
consolidated balance sheets. The interim consolidated financial statements from
9
<PAGE> 10
1999 have been restated to conform with the 2000 presentation. For further
discussion of these plans, see notes 1 and 3 to the Company's unaudited
consolidated financial statements herein.
The Company is engaged in the business of the daily rental of vehicles,
including cars, trucks and passenger vans (through both owned and franchised
operations).
REVENUES PRIMARILY CONSIST OF:
Vehicle rental -- revenue generated from renting vehicles to customers
including revenue from loss or collision damage waivers, insurance sales and
other products provided at rental locations. Royalty fees and other -- fees
generated from the Company's licensees and other non-vehicle rental or sales
items.
EXPENSES PRIMARILY CONSIST OF:
Direct vehicle and operating -- includes wages and related benefits, rent
and concessions paid to airport authorities and costs relating to the operation
and rental of revenue earning vehicles including insurance. Depreciation,
vehicle -- depreciation expenses relating to revenue earning vehicles including
net gains or losses on the disposal of such equipment. Selling, general and
administrative -- includes reservation, advertising, marketing and other related
expenses, net of third party reimbursements, and commissions to dealers, travel
agents and other third parties. Amortization and non-vehicle depreciation --
includes amortization of goodwill and other intangibles as well as depreciation
of capitalized assets. Vehicle and other interest, net -- interest expense, net
of interest earned on restricted cash, relating primarily to revenue earning
vehicle financing.
RESULTS OF OPERATIONS
General Operating Results. Loss from continuing operations for the first
quarter of 2000 increased $10.2 million to $29.9 million compared with a loss of
$19.7 million in the first quarter of 1999. Loss per share from continuing
operations for the first quarter of 2000 was $0.80 per diluted share compared to
a loss of $0.55 per diluted share in 1999. This decrease was primarily due to
heightened seasonality, caused by our expansion efforts in Europe, and to a
lesser extent in Truck rental, somewhat offset by improving margins in North
American Car Rental, and an $11.0 million increase in bad debt expense due to
continued system conversion issues. See the discussion related to selling,
general and administrative expenses following.
Operating Revenues. Vehicle rental revenue increased $71.9 million, or
15.3%, in the first quarter of 2000 to $541.4 million from $469.5 million in the
first quarter of 1999. This increase was due primarily to volume growth of 8.6%
and 84.0% in North America and International car rental, respectively, with a
total volume increase of 15.5%. International same market volume grew
approximately 49.4% with the remainder due to acquisitions. Royalty fees and
other revenues decreased $1.0 million, or 4.1%, in the first quarter of 2000 to
$23.4 million from $24.4 million in the first quarter of 1999 reflecting lower
royalty fees primarily resulting from international franchise acquisitions.
These revenues largely represent royalty and other fees from the Company's
franchisees and revenue from Ryder TRS's move management service.
Operating Expenses. Total operating expenses increased $80.0 million, or
16.6%, in the first quarter of 2000 to $561.2 million from $481.2 million in the
first quarter of 1999, generally reflecting the volume increases previously
mentioned. Direct vehicle and operating expenses increased $39.6 million, or
19.4%, in the first quarter of 2000 to $243.7 million from $204.0 million in
1999. This increase reflects the rise in volume, a $5.5 million increase due to
a shift in mix to leased vehicles in international car rental and a $3.1 million
increase in net repairs, maintenance and reconditioning expenses largely in
international car rental. Vehicle depreciation expense for the first quarter
increased $14.1 million, or 10.9%, from $128.8 million in 1999. This increase
was primarily due to the increase in volume offset by the previously mentioned
shift to leased vehicles. Selling general and administrative expenses increased
by $22.5 million or 17.1% in the first quarter of 2000 to $154.3 million from
$131.8 million in the first quarter of 1999. This increase reflected higher
selling costs associated with the increased rental revenue and the previously
mentioned increase in bad debt expense somewhat offset by a $4.4 million
decrease in administrative personnel expense and travel expenses. We have been
increasing our allowance for doubtful accounts to reflect the aging of customer
receivables.
10
<PAGE> 11
System caused delays in applying cash received to invoices billed has impaired
our ability to collect amounts due. These difficulties are largely concentrated
in Europe and at Ryder TRS and we have undertaken manual and technology based
actions to correct this situation. However, bad debt expense may continue to
have an effect on operating results going forward. Amortization and non-vehicle
depreciation expense increased $3.8 million, or 23.2%, in the first quarter of
2000 to $20.3 million from $16.5 million in the first quarter of 1999 reflecting
the impact of software and other 1999 capital expenditures.
Other expense, net. Other expense, net of interest income, increased $16.0
million in the first quarter of 2000 to $58.7 million from $42.8 million in the
first quarter of 1999. This increase was largely due to higher borrowing levels
reflecting the volume increases and resulting larger average fleet size and an
increase in average interest rates. The rate increase resulted from the issuance
of the senior notes in April 1999 and MTN's in June 1999, both of which replaced
maturing debt that had lower interest rates, and a general rise in interest
rates since the first quarter of 1999.
Benefit for income taxes. The overall year to date tax benefit reflects
the expected full year effective rate, which is higher than the statutory rate
due to the effects of non-deductible intangible amortization and the impact of
state and local income taxes net of the federal benefit. Also impacting the rate
is the effect of the distributions on trust preferred securities shown below the
provision at its gross amount while the tax benefit is included in the
provision.
Distributions on trust preferred securities. The distributions on trust
preferred securities of $4.7 million and $4.6 million for the three-month
periods ended March 31, 2000 and 1999, respectively, represent dividend payments
to holders of these Company obligated mandatorily redeemable securities issued
by a subsidiary of Budget Group, Inc.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's operations have been funded by cash provided
from operating activities and by financing provided by banks, automobile
manufacturers' captive finance companies and asset-backed notes. The Company's
primary use of cash is for the acquisition of new vehicles for the rental fleet.
The indebtedness at March 31, 2000 has interest rates ranging from 3.45% to
11.20% and the material terms of the financing facilities are described below.
The Company intends to fund its fleet financing requirements and debt maturities
through asset-backed notes and revolving credit facilities with financial
institutions for fleet financing and working capital, as well as through other
similar facilities.
ANALYSIS OF CASH FLOWS
Net cash provided by continuing operating activities decreased 9.6% to
$200.0 million during the three months ended March 31, 2000, from $221.3 million
during the three-month period ended March 31, 1999. This decrease is primarily
due to an increase in the loss from continuing operations and an increase in
trade and vehicle receivables somewhat offset by an increase in accounts payable
and accrued liabilities. See note 10 to the Company's unaudited consolidated
financial statements herein.
Net cash used in investing activities is primarily attributable to cash
paid to suppliers of revenue earning vehicles and, to a lesser extent, capital
expenditures. This cash use is mainly offset by cash received from the sale of
vehicles (most of which sales were pursuant to manufacturers' vehicle repurchase
programs). Cash received from the sale of vehicles was $608.8 million and $535.5
million during the first three months of 2000 and 1999, respectively. Cash paid
to suppliers of revenue earning vehicles was $1,058.7 million and $1,053.9
million during the first three months of 2000 and 1999, respectively. Payment
for acquisitions, net of cash acquired, amounted to $5.7 million and $1.0
million during the first three months of 2000 and 1999, respectively. Capital
expenditures, largely for new rental locations, improvement in service levels
and to upgrade computer hardware and software were $14.5 million and $20.7
million for the first three months of 2000 and 1999, respectively.
Net cash provided by financing activities for the three-month period ended
March 31, 2000 increased by $307.2 million over the three-month period ended
March 31, 1999, to net cash provided of $233.9 million.
11
<PAGE> 12
This was due primarily to the incremental use of restricted cash (investing
activity) of $329.0 million, rather than debt, to finance the acquisition of
revenue earning vehicles in the three-month period ended March 31, 1999 while
the commercial paper borrowings funded such activity in the first quarter of
2000.
In the first quarter of 2000, the Company paid $17.6 million to the former
owners of Ryder TRS to repurchase warrants to purchase Class A common stock. See
note 5 to the Company's unaudited consolidated financial statements herein.
In April 2000, the Company entered into a series of agreements to pay the
final payment of the Ryder TRS make-whole obligation for $30.4 million in cash
and will be recorded as a charge to additional paid-in-capital when paid.
Payments of approximately $12.0 million were made in April and May, 2000 and the
final payment of $18.4 is expected to be paid on July 3, 2000.
DEBT FACILITIES -- GENERAL
The Company borrows money directly and through its special purpose fleet
financing subsidiaries, Team Fleet Financing Corporation ("TFFC") and Budget
Funding Corporation. Subsidiaries also have various working capital facilities
in place to finance operating activities. At March 31, 2000, the Company had
$3,889.1 million of indebtedness outstanding, $3,428.0 million of which
represented secured fleet financing and $461.1 million of which represented
non-vehicle indebtedness. At March 31, 2000, the Company had $452.1 million of
availability under various fleet financing facilities.
RECENT DEBT PLACEMENTS AND RETIREMENTS
On February 24, 2000, the Company entered into a $270.0 million Bridge
Facility that expires on June 30, 2000. This facility is utilized to finance the
acquisition of vehicles during the peak buying season. On March 31, 2000, there
was a total of $25.0 million outstanding under the Bridge Facility with an
interest rate of 6.14%.
SENIOR NOTES
In April 1999, the Company issued unsecured senior notes with an aggregate
principal amount of $400.0 million bearing interest at 9.125% due in 2006 (the
"Senior Notes"). The net proceeds from this transaction were primarily used to
repay the outstanding indebtedness under maturing medium-term notes used to
finance revenue earning vehicles and certain other secured indebtedness. Pending
the repayment of the maturing medium-term notes, the Company temporarily reduced
amounts outstanding under its commercial paper facilities. The indenture
governing the Senior Notes contains certain covenants which, among other things,
restrict the Company from incurring certain additional indebtedness, paying
dividends or redeeming or repurchasing its capital stock, consolidating, merging
or transferring assets and engaging in sale/leaseback transactions. In June
1999, the Company exchanged all of the unregistered initial Senior Notes for
registered Senior Notes with identical terms.
FLEET FINANCING FACILITIES
At March 31, 2000, the Company had borrowed $2,726.0 million under
asset-backed MTN's and $538.9 million under a commercial paper ("CP") facility
(collectively "Fleet notes"). The MTN's are comprised of 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 issued in June 1999 ("TFFC-99").
The Fleet notes are utilized largely to finance vehicles eligible for certain
manufacturers' vehicle repurchase programs and other allowable cars and trucks.
Proceeds from the Fleet notes that are temporarily unutilized for vehicle
financing are maintained in restricted cash accounts with the trustees. The
Fleet notes are collateralized by the secured vehicles, restricted cash and
accounts receivable due from the sale of vehicles. Interest rates on the Fleet
notes at March 31, 2000, ranged from 6.07% to 7.85%.
Our other vehicle obligations consist of outstanding lines of credit to
purchase rental fleet. Borrowings under collateralized available lines of credit
at March 2000 consist of $163.1 million for rental vehicles with
12
<PAGE> 13
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. Interest payments for rental
fleet facilities are due monthly at annual interest rates that range from 3.45%
to 11.20% at March 31, 2000. Management expects that vehicle obligations will
generally be repaid within one year from the balance sheet date with proceeds
received from either the repurchase of the vehicles by the manufacturers in
accordance with the terms of the manufacturers' vehicle repurchase programs or
from the sales of the vehicles.
COMMERCIAL PAPER
The commercial paper facility (the "CP") that was established in April
1997, was renewed in April 2000 for $670.0 million had an outstanding principal
balance of $764.6 million and $538.9 million at March 31, 1999 and 2000,
respectively, bears interest rates ranging from 6.20% to 6.45% at March 31,
2000, and is secured by the applicable vehicles and vehicle program receivables.
Under limited circumstances, the CP may be repaid by draws under a related, bank
liquidity facility $581.0 million or a related letter of credit $90.0 million.
The CP is issued periodically with maturities of up to 58 days. It is the
Company's intention 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 March 31, 2000.
MEDIUM TERM NOTES (MTN'S)
The TFFC-96 notes consist of senior notes and subordinated notes. The
senior notes, with an aggregate principal balance of $166.0 million at March 31,
1999 and 2000, bear interest at 6.65% per annum. Monthly principal payments of
$13.8 million commence in May 2001, with the last payment due in April 2002. The
subordinated notes, with an aggregate principal balance of $10.0 million at
March 31, 1999 and 2000, 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 $472.5 million at March 31,
1999 and 2000, bear interest at 7.35% per annum. Monthly principal payments of
$39.4 million commence in October 2001, with the last payment due in September
2002. The subordinated notes, with an aggregate principal balance of $27.5
million at March 31, 1999 and 2000, 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 $1,100.0
million at March 31, 1999 and 2000, respectively. The TFFC-98 notes bear
interest at fixed rates ranging from 6.07% and 6.84% and have maturity dates
from 2001 to 2005. Interest on the TFFC-98 notes is payable monthly.
The TFFC-99 notes issued in June 1999, consist of $950.0 million with rates
ranging from LIBOR plus 0.24% (or 6.37%)to 7.85% and have maturity dates from
2001 to 2004. These notes were issued in three different series. TFFC99-2 has a
principal of $400.0 million bearing a floating interest rate ranging from LIBOR
plus 0.24% to LIBOR plus 1.15% and has a maturity date of June 2001. TFFC 99-3
has a principal amount of $350.0 million bearing fixed interest rates from 6.70%
to 7.60% with a maturity date of June 2002. TFFC 99-4 has a principal amount of
$200.0 million with fixed interest rates of 6.90% to 7.85% and has a maturity
date of June 2004.
CONVERTIBLE SUBORDINATED NOTES
In April 1997, the Company issued convertible subordinated notes with an
aggregate principal amount of $45.0 million 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.
13
<PAGE> 14
TRUST PREFERRED SECURITIES
In June 1998, the Company issued $300.0 million of 6.25% trust preferred
securities and received approximately $291.0 million in net proceeds. These
funds were used to redeem the guaranteed senior notes and to partially fund the
redemption of Ryder TRS's 10% senior subordinated notes, which occurred in July
1998. The trust preferred securities are subject to mandatory redemption upon
the redemption of the underlying debentures due on June 15, 2028. The Company
has the right to defer interest payments due on the subordinated debentures for
up to 20 consecutive quarters, which will also cause a deferral of distributions
under the trust preferred securities.
WORKING CAPITAL FACILITY
Concurrent with the acquisition of Ryder TRS, the Company entered into an
amended and restated secured credit facility to increase its size from $300.0
million to $550.0 million. This facility requires monthly interest payments on
the outstanding balance at a rate based on LIBOR plus 2.50% or prime plus 1.25%
(8.63% at March 31, 2000) and expires in 2003. There is no outstanding balance
on this facility at March 31, 2000. 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
March 31, 2000, the Company had $452.9 million in letters of credit outstanding
resulting in availability under this facility of $97.1 million.
The credit facility was amended in the second quarter of 1999 to, among
other things, modify certain financial covenants and permit the issuance of
additional unsecured term notes to fund the maturities of MTN's.
CHANGE IN FINANCIAL CONDITION
Total assets increased $310.2 million from $5,082.5 million at December 31,
1999 to $5,392.7 million at March 31, 2000. This increase was due primarily to
an increase in revenue earning vehicles, net, of $310.9 million.
Total liabilities increased by $359.9 million from $4,223.5 million at
December 31, 1999 to $4,583.4 million at March 31, 2000. This increase, largely
in notes payable of $251.4 million, resulted primarily from financing the
increase in revenue earning vehicles.
INFLATION
The increased acquisition cost of vehicles is the primary inflationary
factor affecting our operations. Many of our other operating expenses are
inflation sensitive, with increases in inflation generally resulting in
increased costs of operations. The effect of inflation-driven cost increases on
our overall operating costs is not expected to be greater for us than for our
competitors.
SEASONALITY
Generally, in the vehicle rental industry, revenue increases in the spring
and summer months due to the overall increase in business and leisure travel
during this season. We increase the size of our fleet and workforce in the
spring and summer to accommodate increased rental activity during these periods
and decrease our fleet and work force in the fall and winter. However, many of
our operating expenses (such as rent, insurance and administrative personnel)
are fixed and cannot be reduced during the fall and winter. As a result of these
patterns, for vehicle rental, the first quarter of each year is typically the
weakest and the third quarter is typically the strongest.
Due to recent, and planned future, expansion of corporate owned rental
operations in Europe, we expect that seasonal fluctuations in operating results
will become more pronounced.
14
<PAGE> 15
ENVIRONMENTAL MATTERS
We have assessed and continue to assess the impact of environmental
remediation efforts on our operations. Our exposure largely relates to the clean
up and replacement of underground gasoline storage tanks.
During 1999, we recognized approximately $0.7 million in expenses related
to remediation efforts and estimate that an aggregate of approximately $1.9
million will be incurred in 2000 and 2001. Approximately $0.2 million was spent
in 2000 through March 31. Based on past experience, we expect these estimates
will be sufficient to satisfy anticipated costs of known remediation
requirements. However, due to factors such as continuing changes in the
environmental laws and regulatory requirements, the availability and application
of technology, the identification of presently unknown remediation sites and
changes in the extent of expected remediation efforts, estimated costs for
future environmental compliance and remediation are subject to uncertainty and
it is difficult to predict the amount or timing of future remediation
requirements.
FORWARD LOOKING STATEMENTS
This Form 10-Q and other statements issued or made from time to time by
Budget Group, Inc. or its representatives contain statements which may
constitute "forward looking statements" under the Private Securities Litigation
Act of 1995. Those statements include statements regarding the intent, belief or
current expectations of Budget Group, Inc. and members of its management team,
as well as the assumptions on which such statements are based. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties and that
actual results may differ materially from those contemplated by such
forward-looking statements. Important factors currently known to management that
could cause actual results to differ materially from those in forward-looking
statements are set forth in Item 7 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1999, and that information is hereby
incorporated by reference in this Form 10-Q. The Company undertakes no
obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to future
operating results over time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is primarily due to floating rate interest
associated with fleet debt. We manage interest rates through use of a
combination of fixed and floating rate debt and interest hedging instruments. No
significant changes have occurred in our capital structure or market risk
profile during the period ended March 31, 2000. See the Company's disclosures
regarding market risk as of December 31, 1999 included under Item 7A of the
Company's Form 10-K.
15
<PAGE> 16
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not applicable.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 4, 2000, the Company issued an aggregate of 56,740 shares of
Class A common stock to the former shareholders of Warren Wooten Ford in
satisfaction of make-whole obligations owed to such shareholders pursuant to the
terms of a Plan and Agreement of Merger dated May 31, 1998.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
In a Form 8-K dated January 4, 2000 and filed January 5, 2000, the Company
filed under Item 5, information related to restructuring, one-time charges and
other fourth quarter adjustments recorded in the fourth quarter of 1999.
16
<PAGE> 17
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BUDGET GROUP, INC.
(Registrant)
By: NEAL S. COHEN
-----------------------------------
Neal S. Cohen
Executive Vice President
Chief Financial Officer
By: THOMAS L. KRAM
-----------------------------------
Thomas L. Kram
Vice President, Controller
(Principal Accounting Officer)
Dated: May 15, 2000
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 22,155
<SECURITIES> 0
<RECEIVABLES> 381,851
<ALLOWANCES> 0<F1>
<INVENTORY> 3,490,481
<CURRENT-ASSETS> 3,894,487
<PP&E> 201,761
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 5,392,709
<CURRENT-LIABILITIES> 694,252
<BONDS> 3,889,147
291,535
0
<COMMON> 374
<OTHER-SE> 517,401
<TOTAL-LIABILITY-AND-EQUITY> 5,392,709
<SALES> 564,719
<TOTAL-REVENUES> 564,719
<CGS> 0
<TOTAL-COSTS> 561,193
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,727
<INCOME-PRETAX> (55,201)
<INCOME-TAX> (29,944)
<INCOME-CONTINUING> (29,945)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,945)
<EPS-BASIC> (0.80)
<EPS-DILUTED> (0.80)
<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>
