<PAGE> 1
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
----------- ----------------
COMMISSION FILE NUMBER 1-13647
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DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 73-1356520
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5330 EAST 31ST STREET, TULSA, OKLAHOMA 74135
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (918) 660-7700
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 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
--- ---
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS OF
MAY 14, 1998 WAS 24,127,980.
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<PAGE> 2
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
FORM 10-Q
<TABLE>
<CAPTION>
CONTENTS
Page
-----
<S> <C>
PART I - FINANCIAL INFORMATION....................................................................................3
ITEM 1. FINANCIAL STATEMENTS...................................................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................................10
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.........................................................13
PART II - OTHER INFORMATION......................................................................................14
ITEM 1. LEGAL PROCEEDINGS.....................................................................14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.......................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................15
ITEM 5. OTHER INFORMATION.....................................................................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................................15
SIGNATURES.......................................................................................................18
INDEX TO EXHIBITS................................................................................................19
</TABLE>
Some of the statements contained herein under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although Dollar Thrifty Automotive Group, Inc.
believes such forward-looking statements are based on reasonable assumptions,
such statements are not guarantees of future performance and certain factors
could cause results to differ materially from current expectations. These
factors include: economic and competitive conditions in markets and countries
where our customers reside and where our companies and their franchisees
operate; changes in capital availability or cost; costs and other terms related
to the acquisition and disposition of automobiles; and certain regulatory and
environmental matters. Dollar Thrifty Automotive Group, Inc. 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.
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Dollar Thrifty Automotive Group, Inc.:
We have reviewed the accompanying consolidated balance sheets of Dollar Thrifty
Automotive Group, Inc. and subsidiaries as of March 31, 1998, and the related
consolidated statements of operations and condensed consolidated statements of
cash flows for the three-month periods ended March 31, 1998 and 1997. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Dollar Thrifty Automotive Group,
Inc. and subsidiaries as of December 31, 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated February 5, 1998, except
for the last two paragraphs of Note 15, as to which the date is March 4, 1998,
we expressed an unqualified opinion on those consolidated financial statements.
DELOITTE & TOUCHE LLP
Tulsa, Oklahoma
April 28, 1998
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<PAGE> 4
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share and Per Share Data)
MARCH 31, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 29,358 $ 56,074
Restricted cash and investments 96,332 137,980
Accounts and notes receivable, net 73,737 89,105
Due from Chrysler 32,837 60,596
Prepaid expenses and other assets 36,568 34,127
Revenue-earning vehicles, net 1,447,087 1,319,490
Property and equipment, net 62,542 62,042
Deferred income taxes 5,305 6,428
Intangible assets, net 176,185 176,368
----------- -----------
$ 1,959,951 $ 1,942,210
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 56,734 $ 88,923
Accrued liabilities 81,954 78,249
Income taxes payable 12,405 12,238
Public liability and property damage 72,611 75,687
Debt and other obligations 1,457,190 1,418,687
----------- -----------
Total liabilities 1,680,894 1,673,784
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value:
Authorized 10,000,000 shares; none outstanding -- --
Common stock, $.01 par value:
Authorized 50,000,000 shares; issued and outstanding 24,127,980
and 23,625,000, respectively 241 236
Additional capital 705,459 695,716
Accumulated deficit (426,643) (427,526)
----------- -----------
279,057 268,426
----------- -----------
$ 1,959,951 $ 1,942,210
=========== ===========
</TABLE>
See notes to consolidated financial statements
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<PAGE> 5
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
UNAUDITED
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
-----------------------
1998 1997
--------- ---------
REVENUES:
<S> <C> <C>
Vehicle rentals $ 135,057 $ 132,226
Vehicle leasing 41,566 31,643
Fees and services 12,627 10,908
Other 2,082 2,324
--------- ---------
Total revenues 191,332 177,101
--------- ---------
COSTS AND EXPENSES:
Direct vehicle and operating 66,084 67,422
Vehicle depreciation, net 63,133 52,913
Selling, general and administrative 39,202 38,415
Interest expense, net of interest income of $3,048 and $1,731 18,644 17,806
Amortization of cost in excess of net assets acquired 1,352 1,502
--------- ---------
Total costs and expenses 188,415 178,058
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 2,917 (957)
INCOME TAX EXPENSE 2,095 362
--------- ---------
NET INCOME (LOSS) $ 822 $ (1,319)
========= =========
Basic and diluted earnings (loss) per share $ 0.03 $ (0.07)
========= =========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 6
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
UNAUDITED
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
------------------------
1998 1997
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 80,628 $ 7,279
CASH FLOWS FROM INVESTING ACTIVITIES:
Revenue-earning vehicles:
Purchases (567,486) (596,017)
Proceeds from sales 376,756 334,699
Restricted cash and investments, net 41,648 90,176
Property and equipment:
Purchases (3,324) (2,885)
Proceeds from sale 450 1,123
Acquisition of businesses, net of cash acquired (1,014) --
--------- ---------
Net cash used in investing activities (152,970) (172,904)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt and other obligations:
Proceeds 85,549 401,788
Payments (47,111) (299,937)
Cash management/working capital - Chrysler, net -- 64,202
Issuance of common shares in public offering 9,648 --
Vehicle financing issue costs (2,460) --
--------- ---------
Net cash provided by financing activities 45,626 166,053
--------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS (26,716) 428
CASH AND CASH EQUIVALENTS:
Beginning of period 56,074 3,425
--------- ---------
End of period $ 29,358 $ 3,853
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING
AND FINANCING ACTIVITIES -
Issuance of common stock for director compensation $ 100 $ --
========= =========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 7
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of Dollar Thrifty Automotive Group, Inc. and its
subsidiaries (the "Company"). In the opinion of management, the
accompanying unaudited consolidated financial statements include all
adjustments, consisting only of normal adjustments, necessary for the
fair presentation of the financial position at March 31, 1998, and the
results of operations and cash flows for the three-month periods ended
March 31, 1998 and 1997. The results of operations for the interim
periods are not indicative of the results for a full year. These
interim financial statements should be read in conjunction with the
Company's audited annual financial statements and notes thereto.
Certain amounts in the 1997 statement of operations have been
reclassified to conform with current year presentation.
2. NEW ACCOUNTING STANDARD
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general
purpose financial statements. The Company did not have other
comprehensive income for the periods presented.
3. ACQUISITION
Effective March 1, 1998, Dollar acquired certain assets and assumed
certain liabilities of its former San Diego franchisee. Dollar paid
approximately $1,500,000 and assumed net liabilities of approximately
$15,000. The transaction has been accounted for using the purchase
method of accounting and operating results from the date of
acquisition, which are not material, are included in the consolidated
statement of operations.
4. DEBT AND OTHER OBLIGATIONS
Debt and other obligations as of March 31, 1998 and December 31, 1997
consist of the following:
<TABLE>
<CAPTION>
MARCH 31, December 31,
1998 1997
(IN THOUSANDS)
VEHICLE DEBT AND OBLIGATIONS
<S> <C> <C>
Asset backed notes, net of discount $1,349,140 $1,369,077
Commercial paper 60,001 --
Deferred vehicle rent 42,221 43,654
Chrysler Financial Corporation 5,450 5,519
---------- ----------
1,456,812 1,418,250
OTHER NOTES PAYABLE 378 437
----------- -----------
Total debt and other obligations $ 1,457,190 $ 1,418,687
=========== ===========
</TABLE>
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<PAGE> 8
On March 4, 1998, the Company, through a newly formed special purpose
financing subsidiary, Dollar Thrifty Funding Corp., established a
$615,000,000 Commercial Paper Program as a part of its existing asset
backed note program. Proceeds are used for financing of vehicle
purchases and for periodic refinancing of asset backed notes.
Concurrently with the establishment of the Commercial Paper Program,
the Company also entered into a 364-day $545,000,000 Liquidity Facility
to support the Commercial Paper Program. The Liquidity Facility
provides the Commercial Paper Program with an alternative source of
funding if the Company is unable to refinance maturing commercial paper
by issuing new commercial paper.
5. CHANGES IN STOCKHOLDERS' EQUITY
On January 15, 1998, 498,105 over allotment shares were issued by the
company at $20.50 per share. Net proceeds of this issuance were
$9,648,294. The proceeds from the offering were used to provide
collateral for financing of revenue-earning vehicles.
6. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is based on the combined
weighted average number of common shares and common share equivalents
outstanding which include, where appropriate, the assumed exercise of
options. In computing diluted earnings per share, the Company has
utilized the treasury stock method.
The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings (loss) per share
("EPS") is shown below.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------------
1998 1997
(IN THOUSANDS EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
Net Income (Loss) $ 822 $ (1,319)
Basic EPS:
Weighted average common shares outstanding 24,049,360 20,000,000
Basic EPS $ 0.03 $ (0.07)
============ ============
Diluted EPS:
Weighted average common shares outstanding 24,049,360 20,000,000
Shares contingently issuable:
Stock options 42,245 --
Performance awards 46,151 --
------------ ------------
Shares applicable to diluted earnings 24,137,756 20,000,000
------------ ------------
Diluted EPS $ 0.03 $ (0.07)
============ ============
</TABLE>
7. CONTINGENCIES
Various claims and legal proceedings have been asserted or instituted
against the Company, including some purporting to be class actions, and
some which demand large monetary damages or other relief which could
result in significant expenditures. Litigation is subject to many
uncertainties, and the outcome of individual matters is not predictable
with assurance. The Company is also subject to potential liability
related to environmental matters. The Company establishes reserves for
litigation and environmental matters when the
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<PAGE> 9
loss is probable and reasonably estimable. It is reasonably possible
that the final resolution of some of these matters may require the
Company to make expenditures, in excess of established reserves, over
an extended period of time and in a range of amounts that cannot be
reasonably estimated. The term "reasonably possible" is used herein to
mean that the chance of a future transaction or event occurring is more
than remote but less than likely. Although the final resolution of any
such matters could have a material effect on the Company's consolidated
operating results for the particular reporting period in which an
adjustment of the estimated liability is recorded, the Company believes
that any resulting liability should not materially affect its
consolidated financial position.
In 1995, a judgment was entered against Dollar and its parent for
$8,705,000 plus attorney's fees and interest, relating to certain
litigation with franchisees, which judgment was reversed by the U.S.
Court of Appeals for the Ninth Circuit on November 28, 1997. In January
1998, the plaintiff's motion for reconsideration was denied. Plantiffs
filed a petition for writ of certiorari in the U.S. Supreme Court
seeking review of a single claim dismissed by summary judgment before
trial. Plantiffs do not seek review of any of the claims which
supported the original judgment. Dollar has opposed the petition.
* * * * * * * * *
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<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company owns two vehicle rental companies, Dollar Rent A Car
Systems, Inc. ("Dollar") and Thrifty Rent-A-Car System, Inc. ("Thrifty"). The
Company, Dollar, Thrifty and their respective subsidiaries are sometimes
referred to in this report collectively as the "Group." The majority of Dollar's
revenue is derived from renting vehicles to customers from company-owned stores,
while the majority of Thrifty's revenue is generated from leasing vehicles and
providing services to franchisees.
RESULTS OF OPERATIONS
The following table sets forth for the three months ended March 31,
1998 and 1997 the percentage of operating revenues represented by certain items
in the Company's consolidated statement of operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
March 31, March 31,
--------- ---------
1998 1997
---- ----
(PERCENTAGE OF REVENUES)
Revenues:
<S> <C> <C>
Vehicle rentals .............. 70.6% 74.7%
Vehicle leasing .............. 21.7 17.9
Fees and services ............ 6.6 6.1
Other ........................ 1.1 1.3
----- -----
Total revenues .......... 100.0% 100.0%
----- -----
Costs and expenses:
Direct vehicle and operating . 34.5 38.1
Vehicle depreciation, net .... 33.0 29.9
Selling, general and
administrative ............ 20.5 21.7
Interest expense, net ........ 9.7 10.1
Amortization of cost in excess
of net assets acquired .... 0.7 0.7
----- -----
Total costs and
expenses ............. 98.4% 100.5%
----- -----
Income (loss) before income
taxes ........................ 1.6 (0.5)
Income tax expense ............. 1.1 0.2
----- -----
Net income (loss) .............. 0.5% (0.7%)
===== =====
</TABLE>
The Company's major sources of revenue are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
March 31, March 31,
-------- ---------
1998 1997
---- ----
(IN THOUSANDS)
Vehicle rental revenue:
<S> <C> <C>
Dollar .............. $127,945 $118,008
Thrifty ............. 7,112 14,218
-------- --------
$135,057 $132,226
======== ========
Leasing revenue:
Dollar .............. $ 7,019 $ 6,585
Thrifty ............. 34,547 25,058
-------- --------
$ 41,566 $ 31,643
======== ========
</TABLE>
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<PAGE> 11
The following table sets forth certain selected operating data of the
Company for the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
March 31, March 31,
---------- ---------
1998 1997
---- ----
COMPANY-OWNED STORES DATA
(U.S. AND CANADA)
<S> <C> <C>
Average number of vehicles operated . 48,438 48,202
Number of rental transactions ....... 762,166 781,230
Average revenue per transaction ..... $ 177 $ 169
Monthly average revenue per vehicle . $ 929 $ 914
VEHICLE LEASING DATA
(U.S. AND CANADA)
Average number of vehicles leased ... 32,691 25,998
Monthly average revenue per vehicle . $ 424 $ 406
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1997
REVENUES
Total revenues increased 8% compared to first quarter 1997. The
increase in total revenue was due to growth in vehicle rental revenue of 2.1%
and an increase in leasing revenue of 31.4% over the 1997 first quarter. Fees
and services revenue increased $1.7 million primarily due to a final payment
received related to Dollar's terminated Eurodollar franchise agreement. The
increase in rental revenue was due to a 4.7% increase in revenue per transaction
partially offset by a 2.4% decrease in the number of transactions. Increased
leasing revenue resulted from Thrifty's 32.5% increase in the average number of
vehicles leased to franchisees along with a 4.1% increase in the vehicle leasing
rates.
EXPENSES
Total expenses of $188.4 million in 1998 increased by 5.8% from $178.1
million in 1997, although total expenses as a percentage of revenues decreased
to 98.4% in 1998 from 100.5% in 1997.
Direct and vehicle operating expenses for the three months ended March
31, 1998 decreased by $1.3 million, or 2.0%, compared to the three months ended
March 31, 1997. This decrease resulted from a reduction in per unit costs
partially offset by an increase in the number of vehicles operated. These
expenses improved to 34.5% of revenue in 1998 compared to 38.1% of revenue in
1997 due primarily to a decrease in the proportion of total revenue generated
from vehicle rentals at company-owned stores, which carry additional costs not
associated with vehicle leasing revenue. The shift in revenue from vehicle
rentals to vehicle leasing resulted primarily from re-franchising several
Thrifty company-owned stores in late 1997.
Net vehicle depreciation expenses were 33.0% of revenue in 1998 as
compared to 29.9% in 1997. The increased depreciation was due to higher
depreciation rates on both program and non-program vehicles. Non-program vehicle
rates were increased to reflect lower anticipated residual values.
Selling, general and administrative expenses of $39.2 million in 1998
increased by 2.0% from $38.4 million in 1997, but were lower as a percentage of
revenue. Higher selling, general and administrative expenses arose primarily
from increases in personnel costs offset partially by lower sales and marketing
expenses.
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<PAGE> 12
Net interest expense increased 4.7% to $18.6 million, but decreased as
a percent of revenue from 10.1% in 1997 to 9.7% in 1998. The increase in expense
is due to the effect of increased debt levels and higher short-term rates
partially offset by an increase in interest income on investments.
The tax provision for the first quarter of 1988 was $2.1 million. The
effective tax rate of 71.8% in 1998 differs from the U.S. statutory rate due
primarily to non-deductable amortization costs in excess of net assets acquired
and losses relating to Thrifty's Canadian subsidiary for which no benefit was
recorded.
For 1997, the Company had income tax expense of $0.4 million even
though the loss before income taxes was $0.9 million. This unfavorable tax
result was due primarily to non-deductible amortization costs in excess of net
assets acquired and losses relating to Thrifty's Canadian subsidiary for which
no benefit was recorded.
Interim reporting requirements for applying the separate, annual
effective income tax rates to U.S. and Canadian operations, combined with the
seasonal impact of the Canadian operations, will cause significant variations
in the Company's quarterly consolidated effective income tax rates.
NET INCOME
The Company had net income of $822,000 in the first quarter of 1998, or
$.03 per share compared to a 1997 first quarter loss of $1.3 million, or $.07
per share.
LIQUIDITY AND CAPITAL RESOURCES
The Group's U.S. and Canadian operations are funded by cash provided by
operating activities and its financing arrangements. The Group's primary use of
funds is for the acquisition of revenue earning vehicles. For the three months
ended March 31, 1998, the Group's expenditures for revenue earning vehicles were
$567.5 million, which were partially offset by $376.8 million in proceeds from
the sale of used vehicles. The Company expects the amount of cash required to
purchase vehicles, net of proceeds from the sale of used vehicles, to be higher
than they were in 1997. For the three months ended March 31, 1998, the Group's
non-vehicle capital expenditures were $4.3 million.
At March 31, 1998, the Group had $29.4 million in cash and $70 million
in working capital available under its $215 million five-year, senior secured,
revolving credit facility (the "Revolving Credit Facility"). The Revolving
Credit Facility is used to provide letters of credit with a sublimit of $190
million and cash for daily operating activities with a sublimit of $70 million.
The Group had letters of credit outstanding of approximately $29 million and no
working capital borrowings at March 31, 1998. The Group has significant
requirements for bonds and letters of credit to support its insurance programs
and airport concession obligations. At March 31, 1998, the Group had
approximately $88.3 million in bonds outstanding.
The Company acquires its U.S. revenue earning vehicles with secured
vehicle financing consisting of $1.35 billion in asset backed notes and up to
$615 million in commercial paper. The Canadian vehicle fleet is financed under a
lease agreement with CFI Auto Lease Trust (the "Trust"), which has committed to
$91.0 million of funding through June 2000.
The asset backed note program is comprised of $1.35 billion in asset
backed notes with maturities ranging from 1998 to 2005. Borrowings under the
asset backed notes are secured by eligible vehicle collateral and bear interest
at fixed rates on $1,056.6 million ranging from 6.25% to 6.80% and floating
rates on $293.4 million ranging from LIBOR plus .70 to 1.25. Proceeds from the
asset backed notes that are temporarily unutilized for financing vehicles and
certain related receivables are maintained in restricted cash and investments
accounts which were approximately $96.3 million at March 31, 1998.
The Company established the commercial paper program on March 4, 1998
of up to $615 million (the "Commercial Paper Program") and concurrently,
established a $545 million liquidity facility to support the Commercial Paper
Program. Borrowings under this program are secured by eligible vehicle
collateral and bear interest based on market-dictated commercial paper rates. At
March 31, 1998, the Group had issued $60 million in commercial paper under
this program.
The Company expects to continue to acquire its revenue earning vehicles
with secured vehicle financing.
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<PAGE> 13
SEASONALITY
The vehicle rental operation is a seasonal business and is impacted by
the leisure travel segment. The third quarter, which includes the peak summer
travel months, has historically been the strongest quarter of the year. During
the peak season, the Group increases its rental fleet and workforce to
accommodate increased rental activity. As a result, any occurrence that disrupts
travel patterns during the summer period could have a material adverse effect on
the annual performance of the Company. The first and fourth quarters for the
Group's rental operations are generally the weakest, when there is limited
leisure travel and a greater potential for adverse weather conditions. Many of
the operating expenses such as rent, general insurance and administrative
personnel are fixed and cannot be reduced during periods of decreased rental
demand.
YEAR 2000
The Company utilizes software and related technologies throughout its
businesses that will be affected by the date change in the year 2000 ("Year
2000"). The Company has identified all areas of application software, operating
system software, hardware and external interfaces that require Year 2000
compliance. The scope of the Year 2000 issue has been assessed by each
department within both Dollar and Thrifty to identify the potential problems the
Company might experience. Certain information systems, such as the reservations
system, were recently developed and are believed to be Year 2000 compliant.
Other systems are being modified to adapt for Year 2000, such as the fleet and
rental transaction processing systems. A third group of systems, primarily
financial systems, are vendor supplied and will be upgraded or replaced with
certified Year 2000 compliant software. The Company plans to complete
modifications and testing of all its systems for Year 2000 issues during 1998
and 1999. The estimated cost for the Year 2000 compliance project is $5 million,
and has been anticipated and budgeted for fully in the 1998 and 1999 operating
and capital plans. However, the Company cannot measure the impact that the Year
2000 issue will have on its vendors, suppliers, customers and other parties with
which it conducts business.
NEW ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This SOP provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. This SOP requires that entities capitalize certain internal-use software
costs once certain criteria are met. The Company is currently evaluating SOP
98-1, but does not expect it to have a material impact on its consolidated
financial statements. This SOP is effective for financial statements for fiscal
years beginning after December 15, 1998. Earlier application is encouraged in
fiscal years for which annual financial statements have not been issued.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The following information about the Group's market sensitive financial
instruments constitutes a "forward-looking" statement. The Group's primary
market risk exposure is changing interest rates, primarily in the United States.
The Group's policy is to manage interest rates through use of a combination of
fixed and floating rate debt. A portion of the Group's borrowings are
denominated in Canadian dollars which exposes the Group to market risk
associated with exchange rate fluctuations. The Group has entered into no
hedging or derivative transactions. All items described are non-trading and are
stated in U.S. Dollars.
Reference is made to the Group's quantitative disclosures about market
risk as of December 31, 1997 included under Item 7 of the Company's most recent
Form 10-K/A.
-13-
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 12, 1993, certain of Dollar's franchisees in the states of
Washington and Oregon instituted an action in the U.S. District Court for the
Western District of Washington, alleging violations by Dollar and its parent of
various state franchise statutes and breach of contract. The matter resulted in
an $8.7 million jury verdict against Dollar and its parent, which was reversed
by the U.S. Court of Appeals for the Ninth Circuit on November 28, 1997. The
plaintiff franchisees petitioned the appeals court for a rehearing which was
denied. Plaintiffs filed a petition for writ of certiorari in the U.S. Supreme
Court seeking review of a single claim dismissed by summary judgment before
trial. Plaintiffs do not seek review of any of the claims which supported the
original judgment. Dollar has opposed the petition.
On November 2, 1994, the City of San Jose, California filed an action
in the Superior Court of California, against Chevron, Dollar and others, seeking
unspecified compensatory and punitive damages and injunctive relief. The City of
San Jose has not served process on Dollar. The suit relates to pollution at a
site currently occupied by Dollar and formerly occupied by Chevron. Dollar has
partially remediated the affected soil, but not the allegedly affected ground
water. Dollar believes that prior uses of the site resulted in any remaining
contamination at the site.
On October 2, 1997, a purported class action suit was filed in the
Circuit Court of Coosa County, Alabama, against Dollar, Thrifty and other rental
companies. The plaintiffs in this suit alleged violations of state law in
connection with the sale by the rental companies of certain insurance products.
Dollar and Thrifty have filed answers denying the alleged violations. The case
has been removed to the U.S. District Court for the Middle District of Alabama.
Plaintiffs filed an amended complaint on February 16, 1998, dropping their fraud
allegations, but adding a claim for a refund of the amounts paid for insurance.
The court has ordered discovery on the issue of whether a class can properly be
certified.
In addition to the foregoing, various legal actions, claims and
governmental inquiries and proceedings are pending or may be instituted or
asserted in the future against the Company and its subsidiaries. Litigation is
subject to many uncertainties, and the outcome of the individual litigated
matters is not predictable with assurance. It is possible that certain of the
actions, claims, inquiries or proceedings, including those discussed above,
could be decided unfavorably to the Company or the subsidiaries involved.
Although the amount of liability with respect to these matters cannot be
ascertained, potential liability is not expected to materially affect the
consolidated financial position or results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On December 23, 1997, the Company completed its initial public offering
of Common Stock (the "Offering") pursuant to a Registration Statement on Form
S-1, Registration No. 333-39661, which became effective on December 16, 1997.
Although the Offering closed on December 23, 1997, both on such date and on
January 15, 1998, the underwriters exercised over allotment options covered in
the registration. The Offering concluded upon closing of the last exercise of
the over allotment option.
On January 15, 1998, the underwriters exercised the final portion of
their over allotment option, purchasing an additional 498,105 shares of Common
Stock. The Company received proceeds of $9,648,294 net of the underwriting
discount of $562,859 ($1.13) per share.
The Company used the net proceeds to provide credit enhancement for the
fleet financing facilities through a financing subsidiary of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the first quarter
ended March 31, 1998.
-14-
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
first quarter ended March 31, 1998.
ITEM 5. OTHER INFORMATION
There is no additional information to report for the first quarter
ended March 31, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits
-----------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
---------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company, filed as
the same numbered exhibit with the Company's
Registration Statement on Form S-1, as amended,
Registration No. 333-39661, which became effective
December 16, 1997*
3.2 By-Laws of the Company, filed as the same numbered
exhibit with the Company's Registration Statement on
Form S-1, as amended, Registration No. 333-39661,
which became effective December 16, 1997*
4.1 Form of Certificate of Common Stock, filed as the
same numbered exhibit with the Company's Registration
Statement on Form S-1, as amended, Registration No.
333-39661, which became effective December 16, 1997*
4.2 Base Indenture dated as of December 13, 1995 between
Thrifty Car Rental Finance Corporation and Bankers
Trust Company, filed as the same numbered exhibit
with the Company's Registration Statement on Form
S-1, as amended, Registration No. 333-39661, which
became effective December 16, 1997*
4.3 Series 1995-1 Supplement to Base Indenture dated as
of December 13, 1995 between Thrifty Car Rental
Finance Corporation and Bankers Trust Company, filed
as the same numbered exhibit with the Company's
Registration Statement on Form S-1, as amended,
Registration No. 333-39661, which became effective
December 16, 1997*
4.4 Master Motor Vehicle Lease and Servicing Agreement
dated as of December 13, 1995 between Thrifty Car
Rental Finance Corporation and Thrifty, filed as the
same numbered exhibit with the Company's Registration
Statement on Form S-1, as amended, Registration No.
333-39661, which became effective December 16, 1997*
4.5 Master Collateral Agency Agreement dated as of
December 13, 1995 between Thrifty Car Rental Finance
Corporation and Bankers Trust Company, filed as the
same numbered exhibit with the Company's Registration
Statement on Form S-1, as amended, Registration No.
333- 39661, which became effective December 16, 1997*
4.6 Form of Revolving Credit Agreement among the Company,
Dollar, Thrifty and the Institutions named therein,
filed as the same numbered exhibit with the Company's
Registration Statement on Form S-1, as amended,
Registration No. 333-39661, which became effective
December 16, 1997*
4.7 Form of Series 1997-1 Supplement to Base Indenture
between Rental Car Finance Corp. and Bankers Trust
Company, filed as the same numbered exhibit with the
Company's Registration Statement on Form S-1, as
amended, Registration No. 333-39661, which became
effective December 16, 1997*
4.8 Form of Master Motor Vehicle Lease and Servicing
Agreement among the Company, Dollar, Thrifty and
Rental Car Finance Corp., filed as the same numbered
exhibit with the Company's Registration Statement on
Form S-1, as amended, Registration No. 333-39661,
which became effective December 16, 1997*
</TABLE>
-15-
<PAGE> 16
<TABLE>
<S> <C>
4.9 Commitment Letter dated November 19, 1997, among
Credit Suisse First Boston, The Chase Manhattan Bank,
Chase Securities Inc., Dollar, Thrifty and the
Company regarding a $230,000,000 Revolving Credit
Facility and a $545,000,000 Commercial Paper
Liquidity Facility and related Term Sheet, filed as
the same numbered exhibit with the Company's
Registration Statement on Form S-1, as amended,
Registration No. 333-39661, which became effective
December 16, 1997*
4.10 Amended and Restated Master Collateral Agency
Agreement dated as of December 23, 1997 among the
Company, Rental Car Finance Corp., Thrifty, Dollar
and Bankers Trust Company, filed as the same numbered
exhibit with the Company's Form 8-K, filed March 16,
1998*
4.11 Chrysler Support Letter of Credit and Reimbursement
Agreement dated as of December 23, 1997 among
Chrysler, Dollar, Thrifty, the Company, TRAC Team,
Inc. and DTAG Services, Inc., filed as the same
numbered exhibit with the Company's Form 8-K, filed
March 16, 1998*
4.12 Series 1998-1 Supplement to Base Indenture dated as
of March 4, 1998 between Rental Car Finance Corp. and
Bankers Trust Company, filed as the same numbered
exhibit with the Company's Form 8-K, filed March 16,
1998*
4.13 Master Motor Vehicle Lease and Servicing Agreement
dated as of March 4, 1998 among the Company, Dollar,
Thrifty and Rental Car Finance Corp., filed as the
same numbered exhibit with the Company's Form 8-K,
filed March 16, 1998*
4.14 Note Purchase Agreement dated as of March 4, 1998
among Rental Car Finance Corp., Dollar Thrifty
Funding Corp. and Credit Suisse First Boston, filed
as the same numbered exhibit with the Company's Form
8-K, filed March 16, 1998*
4.15 Liquidity Agreement dated as of March 4, 1998 among
Dollar Thrifty Funding Corp., Certain Financial
Institutions and Credit Suisse First Boston, filed as
the same numbered exhibit with the Company's Form
8-K, filed March 16, 1998*
4.16 Depositary Agreement dated as of March 4, 1998
between Dollar Thrifty Funding Corp. and Bankers
Trust Company, filed as the same numbered exhibit
with the Company's Form 8-K, filed March 16, 1998*
4.17 Collateral Agreement dated as of March 4, 1998 among
Dollar Thrifty Funding Corp., Credit Suisse First
Boston Corporation and Bankers Trust Company, filed
as the same numbered exhibit with the Company's Form
8-K, filed March 16, 1998*
4.18 Dealer Agreement dated as of March 4, 1998 among
Dollar Thrifty Funding Corp., the Company, Credit
Suisse First Boston Corporation and Chase Securities,
Inc., filed as the same numbered exhibit with the
Company's Form 8-K, filed March 16, 1998*
10.1 Vehicle Supply Agreement between Chrysler and Dollar,
filed as the same numbered exhibit with the Company's
Registration Statement on Form S-1, as amended,
Registration No. 333- 39661, which became effective
December 16, 1997*
10.2 Amended and Restated Vehicle Supply Agreement between
Chrysler and Thrifty, filed as the same numbered
exhibit with the Company's Registration Statement on
Form S-1, as amended, Registration No. 333-39661,
which became effective December 16, 1997*
10.3 [Reserved]
10.4 [Reserved]
10.5 [Reserved]
10.6 [Reserved]
10.7 [Reserved]
10.8 Pentastar Transportation Group, Inc. Deferred
Compensation Plan, filed as the same numbered exhibit
with the Company's Registration Statement on Form
S-1, as amended, Registration No. 333-39661, which
became effective December 16, 1997*
</TABLE>
-16-
<PAGE> 17
<TABLE>
<S> <C>
10.9 Pentastar Transportation Group, Inc. Executive
Retention Plan, filed as the same numbered exhibit
with the Company's Registration Statement on Form
S-1, as amended, Registration No. 333-39661, which
became effective December 16, 1997*
10.10 Dollar Thrifty Automotive Group, Inc. Long-Term
Incentive Plan, filed as the same numbered exhibit
with the Company's Registration Statement on Form
S-1, as amended, Registration No. 333-39661, which
became effective December 16, 1997*
10.11 Tax Sharing and Disaffiliation Agreement between
Chrysler Corporation and Dollar Thrifty Automotive
Group, Inc., filed as the same numbered exhibit with
the Company's Registration Statement on Form S-1, as
amended, Registration No. 333-39661, which became
effective December 16, 1997*
10.12 Form of Indemnification Agreement between the Company
and Chrysler, filed as the same numbered exhibit with
the Company's Registration Statement on Form S-1, as
amended, Registration No. 333-39661, which became
effective December 16, 1997*
23.2 Consent of Debevoise & Plimpton (included in Exhibit
5), filed as the same numbered exhibit with the
Company's Registration Statement on Form S-1, as
amended, Registration No. 333- 39661, which became
effective December 16, 1997*
23.3 Consent of Donovan Leisure Newton & Irvine LLP, filed
as the same numbered exhibit with the Company's
Registration Statement on Form S-1, as amended,
Registration No. 333- 39661, which became effective
December 16, 1997*
27.1 Financial Data Schedule**
</TABLE>
- ----------
* Incorporated by reference
** Filed herewith
(b) Reports on Form 8-K
On March 16, 1998, the Company filed a report on Form 8-K to report the
March 4, 1998 closing of the Company's commercial paper facility and liquidity
facility (Item 5. "Other Events").
On March 31, 1998, the Company filed a report on Form 8-K to report the
press release it issued on March 30, 1998 regarding the effect of an accounting
rule for taxes on quarterly results of operations (Item 5. "Other Events").
-17-
<PAGE> 18
SIGNATURES
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, in the City of Tulsa, Oklahoma, on May
15, 1998.
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
By: /s/ JOSEPH E. CAPPY
---------------------------------
Name: Joseph E. Cappy
Title: President and Principal
Executive Officer
By: /s/ STEVEN B. HILDEBRAND
---------------------------------
Name: Steven B. Hildebrand
Title: Vice President, Principal
Financial Officer and
Chief Accounting Officer
-18-
<PAGE> 19
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
27.1 Financial Data Schedule
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998 AND CONSOLIDATED STATEMENTS OF
OPERATIONS AND CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 125,690
<SECURITIES> 0
<RECEIVABLES> 87,403
<ALLOWANCES> 13,666
<INVENTORY> 1,447,087<F2>
<CURRENT-ASSETS> 0<F1>
<PP&E> 105,031
<DEPRECIATION> 42,489
<TOTAL-ASSETS> 1,959,951
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 1,457,190
0
0
<COMMON> 241
<OTHER-SE> 278,816
<TOTAL-LIABILITY-AND-EQUITY> 1,959,951
<SALES> 0
<TOTAL-REVENUES> 191,332
<CGS> 0
<TOTAL-COSTS> 129,217
<OTHER-EXPENSES> 1,352
<LOSS-PROVISION> 1,242
<INTEREST-EXPENSE> 18,644
<INCOME-PRETAX> 2,917
<INCOME-TAX> 2,095
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 822
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
<FN>
<F1>REGISTRANT'S FINANCIAL STATEMENTS INCLUDE AN UNCLASSIFIED BALANCE SHEET.
<F2>ITEM REFERS TO REVENUE-EARNING VEHICLES, NET
</FN>
</TABLE>
