================================================================================
<PAGE>
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 June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-13647
--------------------
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
August 13, 1998 was 24,127,980.
================================================================================
<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........................15
PART II - OTHER INFORMATION.................................................15
ITEM 1. LEGAL PROCEEDINGS.........................................15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................15
ITEM 3. DEFAULTS 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
SIGNATURES..................................................................19
INDEX TO EXHIBITS...........................................................20
</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.
<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 June 30, 1998, and the related
consolidated statements of operations for the three-month and six-month periods
ended June 30, 1998 and 1997 and the condensed consolidated statements of cash
flows for the six-month periods ended June 30, 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
July 29, 1998
<PAGE>
4
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share and Per Share Data)
JUNE 30, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------------- ----------------
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 79,603 $ 56,074
Restricted cash and investments 32,721 137,980
Account and notes receivable, net 82,269 89,105
Due from Chrysler 28,625 60,596
Prepaid expenses and other assets 40,098 34,127
Revenue earning vehicles, net 1,769,477 1,319,490
Property and equipment, net 64,574 62,042
Deferred income taxes 6,059 6,428
Intangible assets, net 174,383 176,368
---------------- ----------------
$ 2,277,809 $ 1,942,210
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 98,286 $ 88,923
Accrued liabilities 84,582 78,249
Income taxes payable 9,123 12,238
Public liability and property damage 76,230 75,687
Debt and other obligations 1,721,512 1,418,687
---------------- ----------------
Total liabilities 1,989,733 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 241 236
24,127,980 and 23,625,000, respectively
Additional capital 705,459 695,716
Accumulated deficit (417,624) (427,526)
---------------- ----------------
288,076 268,426
---------------- ----------------
$ 2,277,809 $ 1,942,210
================ ================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
5
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
UNAUDITED
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
REVENUES:
<S> <C> <C> <C> <C>
Vehicle rentals $ 159,314 $ 155,893 $ 294,371 $ 288,119
Vehicle leasing 52,272 42,595 93,838 74,238
Fees and services 13,091 12,508 25,718 23,416
Other 2,500 1,887 4,582 4,211
------------- ------------- -------------- -------------
Total revenues 227,177 212,883 418,509 389,984
------------- ------------- -------------- -------------
COSTS AND EXPENSES:
Direct vehicle and operating 71,080 68,729 137,164 136,151
Vehicle depreciation, net 74,617 66,056 137,750 118,969
Selling, general and administrative 40,348 37,400 79,550 75,815
Interest expense, net of interest income
of $1,207 and $553 for the three months
ended June 30, 1998 and 1997 and $3,637
and $2,284 for the six months ended
June 30, 1998 and 1997 22,673 22,167 41,317 39,973
Amortization of cost in excess of net
assets acquired 1,345 1,502 2,697 3,004
------------- ------------- -------------- -------------
Total costs and expenses 210,063 195,854 398,478 373,912
------------- ------------- -------------- -------------
INCOME BEFORE INCOME TAXES 17,114 17,029 20,031 16,072
INCOME TAX EXPENSE 7,901 7,861 9,996 8,223
------------- ------------- -------------- -------------
NET INCOME $ 9,213 $ 9,168 $ 10,035 $ 7,849
============= ============= ============== =============
Basic and diluted earnings per share $ 0.38 $ 0.46 $ 0.42 $ 0.39
============= ============= ============== =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
6
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
UNAUDITED
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended June 30
----------------------------------
1998 1997
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 205,850 $ 137,161
CASH FLOWS FROM INVESTING ACTIVITIES:
Revenue-earning vehicles:
Purchases (1,230,501) (1,129,423)
Proceeds from sales 642,764 588,286
Restricted cash and investments, net 105,259 61,071
Property and equipment:
Purchases (7,992) (5,963)
Proceeds from sale 536 1,455
Acquisition of businesses, net of cash acquired (1,014) -
--------------- --------------
Net cash used in investing activities (490,948) (484,574)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt and other obligations:
Proceeds 569,100 862,961
Payments (266,402) (520,592)
Cash management/working capital - Chrysler, net - 5,913
Issuance of common shares in public offering 9,648 -
Vehicle financing issue costs (3,719) -
--------------- --------------
Net cash provided by financing activities 308,627 348,282
--------------- --------------
CHANGE IN CASH AND CASH EQUIVALENTS 23,529 869
CASH AND CASH EQUIVALENTS:
Beginning of period 56,074 3,425
--------------- --------------
End of period $ 79,603 $ 4,294
=============== ==============
SUPPLEMENTAL DISCLOSURE OF NONCASH
OPERATING AND FINANCING ACTIVITIES -
Issuance of common stock for director compensation $ 100 $ -
=============== ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
7
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 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 June 30, 1998, and the
results of operations for the three-month and six-month periods ended
June 30, 1998 and 1997 and cash flows for the six-month periods ended
June 30, 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 June 30, 1998 and December 31, 1997
consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------------- -----------------
(In Thousands)
Vehicle Debt and Obligations
<S> <C> <C>
Asset backed notes, net of discount $ 1,349,204 $ 1,369,077
Commercial paper 306,112 --
Deferred vehicle rent 60,924 43,654
Chrysler Financial Corporation 4,952 5,519
----------------- -----------------
1,721,192 1,418,250
Other Notes Payable 320 437
----------------- -----------------
Total debt and other obligations $ 1,721,512 $ 1,418,687
================= =================
</TABLE>
<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 PER SHARE
Basic earnings per share is computed by dividing net income 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 per share ("EPS")
is shown below.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------------------- --------------------------------
1998 1997 1998 1997
(In Thousands except share and per share data)
<S> <C> <C> <C> <C>
Net Income $ 9,213 $ 9,168 $ 10,035 $ 7,849
Basic EPS:
Weighted average common shares outstanding 24,127,980 20,000,000 24,088,887 20,000,000
Basic EPS $ 0.38 $ 0.46 $ 0.42 $ 0.39
============== =============== ============== ==============
Diluted EPS:
Weighted average common shares outstanding 24,127,980 20,000,000 24,088,887 20,000,000
Shares contingently issuable-
Performance awards 23,667 -- 23,667 --
-------------- --------------- -------------- --------------
Shares applicable to diluted earnings 24,151,647 20,000,000 24,112,554 20,000,000
-------------- --------------- -------------- --------------
Diluted EPS $ 0.38 $ 0.46 $ 0.42 $ 0.39
============== =============== ============== ==============
</TABLE>
<PAGE>
9
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 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. 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, which was denied. Plaintiffs did not seek review of any of the
claims which supported the original judgment.
8. SUBSEQUENT EVENTS
On July 23, 1998, the Company adopted a stockholder rights plan. The
rights will be issued on August 3, 1998, to stockholders of record on
that date, and will expire on August 3, 2008, unless earlier redeemed,
exchanged or amended by the Board of Directors.
The plan provides for the issuance of one right for each outstanding
share of the Company's common stock. Upon the acquisition by a person
or group of 15 percent or more of the Company's outstanding common
stock, the rights generally will become exercisable and allow the
stockholder, other than the acquiring person or group, to acquire
common stock at a discounted price. An exception was made for an
institutional investor whose holdings currently exceed 15 percent.
The plan also includes an exchange option after the rights become
exercisable. The Board of Directors may effect an exchange of part or
all of the rights, other than rights that have become void, for shares
of the Company's common stock for each right. The Board of Directors
may redeem all rights for $.01 per right, generally at any time prior
to the rights becoming exercisable.
The issuance of the rights has no dilutive effect on the number of
common shares outstanding and will not affect earnings per share.
* * * * * * * * *
<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 and six months
ended June 30, 1998 and 1997, the percentage of operating revenues represented
by certain items in the Company's consolidated statement of operations:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
------------ ------------- ------------ -------------
(Percentage of revenues) (Percentage of revenues)
Revenues:
<S> <C> <C> <C> <C>
Vehicle rentals 70.1% 73.2% 70.3% 73.9%
Vehicle leasing 23.0% 20.0% 22.4% 19.0%
Fees and services 5.8% 5.9% 6.2% 6.0%
Other 1.1% 0.9% 1.1% 1.1%
------------ ------------- ------------ -------------
Total revenues 100.0% 100.0% 100.0% 100.0%
============ ============= ============ =============
Costs and expenses:
Direct vehicle and operating 31.3% 32.3% 32.8% 34.9%
Vehicle depreciation, net 32.8% 31.0% 32.9% 30.5%
Selling, general and administrative 17.8% 17.6% 19.0% 19.4%
Interest expense, net 10.0% 10.4% 9.9% 10.2%
Amortization of cost in excess
of net assets acquired 0.6% 0.7% 0.6% 0.8%
------------ ------------- ------------ -------------
Total costs and expenses 92.5% 92.0% 95.2% 95.8%
------------ ------------- ------------ -------------
Income before income taxes 7.5% 8.0% 4.8% 4.2%
Income tax expense 3.5% 3.7% 2.4% 2.1%
============ ============= ============ =============
Net income 4.0% 4.3% 2.4% 2.1%
============ ============= ============ =============
</TABLE>
The Company's major sources of revenue are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
------------- ------------ ------------ -------------
(in thousands) (in thousands)
Vehicle rental revenue:
<S> <C> <C> <C> <C>
Dollar $ 151,178 $ 139,951 $ 279,123 $ 257,959
Thrifty 8,136 15,942 15,248 30,160
============= ============ ============ =============
$ 159,314 $ 155,893 $ 294,371 $ 288,119
============= ============ ============ =============
Vehicle leasing revenue:
Dollar $ 8,611 $ 8,913 $ 15,630 $ 15,498
Thrifty 43,661 33,682 78,208 58,740
============= ============ ============ =============
$ 52,272 $ 42,595 $ 93,838 $ 74,238
============= ============ ============ =============
</TABLE>
<PAGE>
11
The following table sets forth certain selected operating data of the
Company for the three months and six months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
Company-Owned Stores Data (U.S. and Canada):
<S> <C> <C> <C> <C>
Average number of vehicles operated 54,813 54,866 51,643 51,552
Number of rental transactions 868,839 881,755 1,630,897 1,662,985
Average revenue per transaction $183 $177 $180 $173
Monthly average revenue per vehicle $969 $947 $950 $931
Vehicle Leasing Data (U.S. and Canada):
Average number of vehicles leased 38,969 32,660 35,847 29,348
Monthly average revenue per vehicle $447 $435 $436 $422
</TABLE>
Three Months Ended June 30, 1998 compared with Three Months Ended June 30, 1997
Revenues
Total revenues increased 6.7% compared to second quarter 1997. The
increase in total revenue was due to an increase in leasing revenue of 22.7%
over the 1997 second quarter and growth in vehicle rental revenue of 2.2%.
Increased leasing revenue resulted from Thrifty's 25.6% increase in the average
number of vehicles leased to franchisees along with a 3.2% increase in the
vehicle leasing rates. The rental revenue increase consisted of an 8.0% increase
at Dollar and a 49.0% decline at Thrifty. The increase in rental revenue was due
to a 3.4% increase in revenue per transaction partially offset by a 1.5%
decrease in the number of transactions.
Expenses
Total expenses of $210.1 million in 1998 increased by 7.3% from $195.9
million in 1997 primarily due to an increase in depreciation expense.
Direct and vehicle operating expenses for the three months ended June
30, 1998 increased by $2.4 million, or 3.4%, compared to the three months ended
June 30, 1997. This increase resulted from higher personnel costs, airport
concession fees and tour account incentives offset partially by the reduction of
expenses at Thrifty as a result of the re-franchising of several company-owned
stores. These expenses improved to 31.3% of revenue in the second quarter of
1998 compared to 32.3% of revenue in the second quarter of 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 and early 1998.
Net vehicle depreciation expenses were 32.8% of revenue in the second
quarter of 1998 as compared to 31.0% in the second quarter of 1997. The
increased depreciation was due to higher depreciation rates on both program and
non-program vehicles. Non-program vehicle depreciation rates were increased to
reflect lower anticipated residual values.
<PAGE>
12
Selling, general and administrative expenses of $40.3 million in the
second quarter of 1998 increased by 7.9% from $37.4 million in the second
quarter of 1997. Higher selling, general and administrative expenses arose
primarily from increases in personnel costs and increases in sales and marketing
expenditures. Higher expenses in the second quarter of 1998 were also the result
of a one-time cost reduction of $1.5 million in the 1997 second quarter related
to the settlement of a condemnation claim.
Net interest expense increased 2.3% to $22.7 million, but decreased as
a percent of revenue from 10.4% in the second quarter of 1997 to 10.0% in the
second quarter of 1998. The increase in expense is due to the effect of
increased debt levels partially offset by an increase in interest income on
investments.
The tax provision for the second quarter of 1998 was $7.9 million. The
effective tax rate of 46.2% for the second quarter of 1998 differs from the U.S.
statutory rate 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 $9,213,000 in the second quarter of
1998, or $.38 per share compared to a 1997 second quarter income of
$9,168,000, or $.46 per share.
Six Months Ended June 30, 1998 compared with Six Months Ended June 30, 1997
Revenues
Total revenues increased 7.3% compared with the first half of 1997. The
increase in total revenue was due to an increase in leasing revenue of 26.4%
over the first half of 1997 and growth in vehicle rental revenue of 2.2%. Fees
and services revenue increased $2.3 million due to a final payment received
related to Dollar's terminated Eurodollar franchise agreement and higher
franchise fees and other revenue fees from franchisees. Increased leasing
revenue resulted from Thrifty's 28.6% increase in average number of vehicles
leased to franchisees along with a 3.6% increase in vehicle leasing rates. The
increase in rental revenue was due to a 4.0% increase in revenue per transaction
partially offset by a 1.9% decrease in the number of transactions.
Expenses
Total expenses of $398.5 million for the first half of 1998 increased
6.6% from $373.9 million in the first half of 1997, although total expenses as a
percentage of revenues decreased to 95.2% in 1998 from 95.8% in 1997.
Direct and vehicle operating expenses for the six months ended June 30,
1998 increased by $1.0 million, or 0.7%, compared to the six months ended June
30, 1997. This increase resulted from higher personnel costs, airport concession
fees and tour account incentives at Dollar offset by a reduction of expenses at
Thrifty as a result of the re-franchising of several company-owned stores. These
expenses improved as a percentage of revenue primarily due 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
and early 1998.
<PAGE>
13
Net vehicle depreciation expenses were 32.9% of revenue for the first
half of 1998 as compared to 30.5% in 1997. The increased depreciation was due to
higher depreciation rates on both program and non-program vehicles. Non-program
vehicle depreciation rates were increased to reflect lower anticipated residual
values.
Selling, general and administrative expenses of $79.6 million for the
first half of 1998 increased by 4.9% from $75.8 million for the first half of
1997, but were slightly lower as a percentage of revenue. Higher selling,
general and administrative expenses arose primarily from increases in personnel
costs and higher sales and marketing expenditures. Higher expenses in the first
half of 1998 were also the result of a one-time cost reduction of $1.5 million
in the first half of 1997 related to the settlement of a condemnation claim.
Net interest expense increased 3.4% to $41.3 million, but decreased as
a percent of revenue from 10.2% in the first half of 1997 to 9.9% in the first
half of 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 half of 1998 was $10.0 million. The
effective rate of 49.9% in 1998 differs from the U.S. statutory rate 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 interim consolidated effective income tax rates.
Net Income
The Company had net income of $10.0 million for the first half of 1998,
or $.42 per share compared to net income of $7.8 million, or $.39 per share for
the first half of 1997.
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 six months
ended June 30, 1998, the Group's expenditures for revenue-earning vehicles were
$1.2 billion, which were partially offset by $643 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 six months ended June 30, 1998, the Group's
non-vehicle capital expenditures were $9.4 million.
At June 30, 1998, the Group had $79.6 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 operating activities with a sublimit of $70 million. The
Group had letters of credit outstanding of approximately $45 million and no
working capital borrowings at June 30, 1998. The Group has significant
requirements for bonds and letters of credit to support its insurance programs
and airport concession obligations. At June 30, 1998, the Group had
approximately $100.8 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, which is supported by underlying
bank financing that is required to be renewed annually by the Trust.
<PAGE>
14
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 LIBOR plus 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 $32.7 million at June 30,
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
June 30, 1998, the Group had $306.1 million in commercial paper outstanding
under this program.
The Company expects to continue to acquire its revenue-earning vehicles
with secured vehicle financing.
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.
<PAGE>
15
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.
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 certiorari in the U.S. Supreme Court
seeking review of a single claim dismissed by summary judgment before trial,
which was denied. Plaintiffs did not seek review of any of the claims which
supported the original judgment.
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
There is no information to report for the second quarter ended June 30,
1998.
<PAGE>
16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the second quarter
ended June 30, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
second quarter ended June 30, 1998.
ITEM 5. OTHER INFORMATION
There is no additional information to report for the second quarter
ended June 30, 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
</TABLE>
<PAGE>
17
<TABLE>
<S> <C>
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*
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*
4.19 Rights Agreement (including a Form of Certificate of
Designation of Series A Junior Participating
Preferred Stock as Exhibit A thereto, a Form of Right
Certificate as Exhibit B thereto and a Summary of
Rights to Purchase Preferred Stock as Exhibit C
thereto) dated as of July 23, 1998 between Dollar
Thrifty Automotive Group, Inc. and Harris Trust and
Savings Bank, as Rights Agent, filed as the same
numbered exhibit with the Company's Form 8-K, filed
July 24, 1998*
</TABLE>
<PAGE>
18
<TABLE>
<S> <C>
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*
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 th 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
No report on Form 8-K was filed by the Company during or applicable to
the quarter ended June 30, 1998.
<PAGE>
19
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
August 13, 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
<PAGE>
20
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of June 30, 1998 and Consolidated Statements
of Operations and Condensed Consolidated Statements of Cash Flows for the Three
and Six Months Ended June 30, 1998 and 1997 and is qualified in its entirety by
reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 112,324
<SECURITIES> 0
<RECEIVABLES> 96,563
<ALLOWANCES> 14,294
<INVENTORY> 1,769,477<F2>
<CURRENT-ASSETS> 0
<PP&E> 105,974
<DEPRECIATION> 41,400
<TOTAL-ASSETS> 2,277,809
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 1,721,512
0
0
<COMMON> 241
<OTHER-SE> 287,835
<TOTAL-LIABILITY-AND-EQUITY> 2,277,809
<SALES> 0
<TOTAL-REVENUES> 418,509
<CGS> 0
<TOTAL-COSTS> 274,914
<OTHER-EXPENSES> 2,697
<LOSS-PROVISION> 2,704
<INTEREST-EXPENSE> 41,317
<INCOME-PRETAX> 20,031
<INCOME-TAX> 9,996
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,035
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
<FN>
<F1>Registrant's financial statements include an unclassified balance sheet.
<F2>Item refers to revenue-earning vehicles, net
</FN>
</TABLE>
