Budget Group Reports Fourth Quarter and Year-End Results
24 February 1999
Budget Group Reports Fourth Quarter and Year-End Results
DAYTONA BEACH, Fla., Feb. 23 -- Budget Group, Inc.
released its fourth quarter 1998 results today, reporting a loss of $1.28 per
diluted share before one-time items, compared to a loss of 9 cents per diluted
share for the quarter ended December 31, 1997. The company reported a net
loss before one-time and restructuring charges for the fourth quarter of
$46.1 million compared to a net loss of $2.4 million in the prior year's
quarter. Fourth quarter revenues increased to $689.3 million, up from
$438.1 million in 1997 due primarily to the acquisition of Ryder TRS last
June. During the quarter, the company took after tax restructuring and
non-recurring charges of $20.2 million or 56 cents per diluted share.
For the full year 1998, diluted earnings per share excluding one-time and
restructuring charges and extraordinary items were 73 cents compared to $1.25
per diluted share in 1997. Net income for the year ended December 31, 1998,
before one-time and restructuring charges was $23.7 million compared to
$29.8 million in 1997. For the year, revenues increased to $2,616.2 million,
up from $1,411.4 million. Operating income before one-time and restructuring
charges totaled $238.9 million compared to $171.0 million in the prior year.
Results for 1998 represent a full year from Budget Rent a Car (BRAC),
Budget Car Sales, VPSI, Cruise America and Premier Car Rental and seven months
of Ryder TRS. Results for the fourth quarter 1997 exclude Ryder TRS. Results
for 1997 represent eight months from BRAC, five months from Premier and a full
year from Cruise America and the former Team Rental Group (renamed Budget
Group), which includes VPSI and a portion of Budget Car Sales.
Results for the quarter were negatively impacted by weaker than expected
volume and higher mileage and damage penalties at BRAC as well as spending
associated with marketing initiatives such as Fastbreak and Perfect Drive.
European BRAC operations were adversely impacted by the loss of revenues and
royalty fees from Sixt in Germany, which is disputing the termination of its
franchise agreement. Losses from Budget Car Sales were due to inventory and
start-up costs coupled with lower than anticipated volume.
Sandy Miller, Budget Group Chairman and CEO, said, "Fourth quarter
earnings were disappointing. We are focused on cutting costs and raising
revenues to reverse the fourth quarter's negative trends. We have identified
significant cost-savings initiatives to be implemented in 1999 and are seeing
favorable volume and utilization trends in the first quarter of 1999."
Revenue for the quarter for Budget Rent a Car North American corporate car
rental operations reached $268.3 million, up 8% over the prior year.
Excluding 1998 licensee acquisitions, revenue was up 3.3%, while rental days
(volume) were basically flat compared to the prior year fourth quarter
reflecting increased yields. The company continued to price competitively
relative to its position in the market place and utilized its new state-of-
the-industry yield management system to achieve a daily dollar average of
$40.99 for the fourth quarter, up 3.9% over the prior year. BRAC's revenue
for the year totaled $1,155.5 million. Operating income for the car rental
division before one-time and restructuring charges was $2.1 million for the
quarter.
Revenues for the truck rental division reached $186.6 million in the
fourth quarter. The truck division operating income was $3.5 million, before
one-time and restructuring charges. (Comparisons to the prior year period are
not meaningful given the magnitude of the Ryder TRS acquisition.)
Revenue from Budget Car Sales in the fourth quarter reached
$151.1 million, up from $67.9 million in the prior year. Annual car sales
revenue totaled $547.7 million, versus $239.4 million in the prior year.
Revenue from Budget Car Sales includes proceeds from the sale of units at
retail and wholesale. With 38 stores open at the end of the period, units
sold retail increased to 6,637 during the quarter compared to 26 stores
selling 3,715 units during the prior year fourth quarter. Units sold retail
for the year totaled 26,065, up 86% over prior year. The operating loss for
the quarter before one-time and restructuring charges was $6.9 million.
Miller noted, "In 1998 we made significant investments in our Budget Rent
a Car subsidiary and expect those investments to deliver positive results in
1999. With new presidents for North America and BRAC International, our yield
management system now in place and Fastbreak service at 130 U.S. airport
locations, we continue to progress in our efforts to improve the performance
of our BRAC operations. We are integrating Budget Truck Rental and Ryder TRS
to capitalize on their combined strengths and are consolidating functions
across our other Budget Group subsidiaries. We have halted expansion of
Budget Car Sales in order to focus on improving the profitability of our
existing stores."
Budget Group, Inc. is a global network of vehicle rental and sales
companies operating in three principal segments: Car Rental, Truck Rental and
Car Sales. In Car Rental, Budget Group, through subsidiary companies and
their franchisees, operates Budget Rent a Car Corporation, the world's third
largest car and truck rental system, and Premier Car Rental, the nation's
third largest car rental company serving the insurance replacement market.
The company also operates VPSI, the U.S. leader in commuter van pooling
services, and Budget Airport Parking, a system of airport parking units
located adjacent to Budget Rent a Car facilities in select locations. In
Truck Rental, Budget Group operates Ryder TRS, the nation's second largest
consumer truck rental company; Budget Truck Rental, the third largest consumer
truck rental company; and Cruise America, the largest recreational vehicle
rental and sales company in North America. In Car Sales, Budget Group
operates Budget Car Sales, one of the leading independent retailers of late
model vehicles in the U.S.
Statements made in this press release that are not historical in nature
may include 'forward-looking statements' within the meaning of the federal
securities laws. It is important to note that these statements involve a
number of risks, uncertainties and other factors that could cause Budget
Group, Inc.'s actual results to differ materially from those projected in such
forward-looking statements. Additional information concerning such matters is
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, and other documents subsequently filed by the Company with
the SEC, all of which are available from the SEC.
BUDGET GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Period Ending December 31
(in Thousands, Except Per Share Data)
4th quarter Year to Date
1998 1997 1998 1997
OPERATING REVENUE:
Vehicle rental $499,988 $333,371 $1,934,750 $1,070,436
Retail vehicle sales 161,895 87,213 583,252 289,111
Royalty fees and other 27,410 17,518 98,197 51,889
Total operating revenue 689,293 438,102 2,616,199 1,411,436
OPERATING EXPENSES:
Direct vehicle and operating 242,428 157,656 815,748 464,756
Depreciation -- vehicle 143,869 93,701 500,210 292,112
Cost of retail vehicle sales 147,719 77,400 524,907 251,068
Selling, general and
administrative 168,610 66,861 498,075 208,974
Amortization and non-vehicle
depreciation 17,597 5,826 54,526 23,530
Restructuring and pooling
expenses 14,862 0 16,457 0
Total operating expenses 735,085 401,444 2,409,923 1,240,440
OPERATING INCOME (LOSS) (45,792) 36,658 206,276 170,996
OTHER EXPENSE:
Interest, net 52,784 37,787 190,239 115,397
Debt extinguishment costs 0 0 9,454 0
Total other expense 52,784 37,787 199,693 115,397
INCOME (LOSS) BEFORE
INCOME TAXES (98,576) (1,129) 6,583 55,599
Provision (benefit) for
income taxes (36,954) 1,253 257 25,825
Distribution on trust
preferred securities 4,615 0 9,957 0
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (66,237) (2,382) (3,631) 29,774
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT
(Net of income taxes
of $26,602) 0 0 (45,296) 0
NET INCOME (LOSS) ($66,237) ($2,382) ($48,927) $29,774
4th Quarter Year to Date
1998 1997 1998 1997
Weighted average number
of shares outstanding 35,928,000 27,023,000 32,067,000 20,112,000
Basic EPS
-- Income (Loss) before
extraordinary item (1.84) (0.09) (0.12) 1.48
-- Extraordinary Item 0.00 0.00 (1.41) 0.00
-- Net Income (Loss) (1.84) (0.09) (1.53) 1.48
Weighted average number
of shares outstanding-
Diluted 35,928,000 27,023,000 32,067,000 27,863,000
Diluted EPS
-- Income (Loss) before
extraordinary item (1.84) (0.09) (0.12) 1.25
-- Extraordinary Item 0.00 0.00 (1.41) 0.00
-- Net Income (Loss) (1.84) (0.09) (1.53) 1.25
BUDGET GROUP, INC.
SEGMENT REPORTING
Period Ending December 31
(in thousands)
4th quarter Year to Date
1998 1997 1998 1997
REVENUE:
Car Rental $365,798 $328,754 $1,527,471 $1,014,797
Truck Rental and Sales 186,609 60,722 613,671 215,943
Retail Car Sales 151,109 67,945 547,690 239,355
Eliminations (14,223) (19,319) (72,633) (58,659)
Total Revenue $689,293 $438,102 $2,616,199 $1,411,436
OPERATING INCOME:
Car Rental $(16,779) $37,985 $171,479 $147,521
Truck Rental and Sales 1,914 1,919 86,778 29,543
Retail Car Sales (15,385) (2,166) (22,459) (2,405)
Corporate Overhead (15,542) (1,080) (29,522) (3,663)
Total Operating
Income (Loss) $(45,792) $36,658 $206,276 $170,996
BUDGET RENT A CAR CORPORATION
4th QUARTER 1998 OPERATING STATISTICS
1998 CHANGE FROM
4th QUARTER PRIOR 4th QUARTER*
North American Cars
Average Fleet 89,863 (1.1%)
Utilization 79.2% 50 bps
Rental Days 6,543,687 (0.4%)
Daily Dollar Average $40.99 3.9%
Rental Revenue $268,277,186 3.3%
Transactions 1,699,309 .8%
Revenue Per Unit $995 4.5%
* Based on same-market comparison representing BRAC and Team Rental
operations combined in April 1997; excluding recent licensee
acquisitions.
Budget Group, Inc.
Question and Answer Supplement to
Fourth Quarter Earnings Press Release
1) What are you doing to improve the performance of BRAC in 1999?
We are very optimistic about 1999. In January, we appointed Mark
Sotir as president, BRAC North America. He previously led the
worldwide marketing efforts for BRAC. Under his leadership, the
trends in first quarter are improving significantly, particularly in
same market volume. Same market volume was up 3.8% in January and 6
to 7% so far in February. We are in negotiations with our fleet
vendor to resolve issues regarding mileage, damage and holding costs
which adversely affected 1998. Last year, we made a number of
investments to strengthen the business and improve profitability in
1999 and beyond. These efforts included:
-- Refurbished over 100 locations
-- Added 101 new local market stores
-- Yield Management System
-- Perfect Drive and Fastbreak
-- New brand advertising
-- Internet booking engine
-- Re-entered tour market
2) Why was Budget Group's Q4 performance lower than originally expected
in November?
Last November, we estimated that our net loss before one-time and
extraordinary items in the fourth quarter would be as much as $36
million. Actual results came in at a loss of $46 million. The
incremental $10 million loss is due to lower than expected volume in
December at BRAC, Budget Car Sales and Budget Truck Group.
3) What progress has been made in stemming the losses at Budget Car
Sales?
Budget Car Sales is making strides to address its operating losses.
Expansion has stopped. Three stores (Charlotte, Indianapolis and
Philadelphia) have been closed. A property held for future
development has been sold. Management incentives, operating policies
and automated systems are now in place that support the focus on
profitability. We are considering various alternatives relating to
Budget Car Sales. We are reviewing options to either franchise or
close certain under-performing stores. We have prepared our Uniform
Franchise Offering Circular and are able to sell Budget Car Sales
franchises in most states. We have a number of potential parties
interested in purchasing car sales franchises. We are in negotiations
to bring on a strategic partner to assist in managing under-performing
stores. These and other strategic initiatives will be completed by
the end of the second quarter to reach break-even by year-end 1999.
4) What is the 1999 earnings impact of the restructuring?
The restructuring charges and one-time adjustments incurred in the
fourth quarter 1998 will benefit 1999 earnings by approximately
$15 million or 32 cents per diluted share. The majority of the
earnings benefits are derived from the elimination of salary and
benefits related to headcount reductions taken during the fourth
quarter.
5) What is the status of Budget Rent a Car's operations in Germany?
Budget International ceased doing business with its German licensee in
October 1998. Budget inbound reservations to Germany are being
serviced by another car rental company. The appeal of the termination
was heard by the German courts in January. The Company anticipates a
ruling by April 1999. We are optimistic that the court will rule in
our favor. We continue negotiations in an attempt to settle the case.
We are preparing for the start up of operations upon receipt of the
ruling. In addition, interest exists among our European licensees to
open franchises in Germany.
6) What progress has been made in integrating Ryder TRS and Budget Truck
Rental?
Budget Group formed the Budget Truck Group integrating Ryder TRS and
Budget Truck Rental. To date, the operations of Budget One-Way Trucks
-- including pricing, distribution and fleet management -- have been
moved to Denver and merged with Ryder TRS operations. A new field
organization overseeing the combined operations is in the process of
being implemented. New Ryder TRS distribution points have opened at
other Budget Group companies. The operations are expected to be fully
integrated and run as one business by this fall.