- --------------------------------------------------------------------------------
<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 March 31, 1999
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 May
10, 1999 was 24,125,941.
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<PAGE>
2
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
FORM 10-Q
CONTENTS
Page
----
PART I - FINANCIAL INFORMATION.................................................3
ITEM 1. FINANCIAL STATEMENTS.........................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............11
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK...............................18
PART II - OTHER INFORMATION...................................................19
ITEM 1. LEGAL PROCEEDINGS...........................................19
ITEM 5. OTHER INFORMATION...........................................19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................19
SIGNATURES....................................................................20
FACTORS AFFECTING FORWARD LOOKING STATEMENTS
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; the ability of the Company
and its third party providers, vendors, suppliers and independent franchisees to
adequately address the Year 2000 issue; and certain regulatory and environmental
matters. Should one or more of these risks or uncertainties, among others,
materialize, actual results could vary materially from those estimated,
anticipated or projected. 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 sheet of Dollar Thrifty
Automotive Group, Inc. and subsidiaries as of March 31, 1999, and the related
consolidated statement of income and the condensed consolidated statement of
cash flows for the three-month periods ended March 31, 1999 and 1998. 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, 1998, 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 4, 1999, except
for Note 17, as to which the date is March 4, 1999, we expressed an unqualified
opinion on those consolidated financial statements.
DELOITTE & TOUCHE LLP
Tulsa, Oklahoma
April 21, 1999, except for
Note 8 as to which the
date is April 29, 1999
<PAGE>
4
<TABLE>
<CAPTION>
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999 AND DECEMBER 31, 1998
(In Thousands Except Share and Per Share Data)
- ---------------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 44,332 $ 49,505
Restricted cash and investments 36,186 62,255
Accounts and notes receivable, net 115,812 115,423
Prepaid expenses and other assets 45,342 42,186
Revenue-earning vehicles, net 1,641,808 1,342,066
Property and equipment, net 71,605 70,897
Deferred income taxes 8,516 8,554
Intangible assets, net 172,585 174,414
------------- -------------
$ 2,136,186 $ 1,865,300
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 49,538 $ 60,862
Accrued liabilities 99,200 88,426
Income taxes payable 9,741 9,161
Public liability and property damage 75,419 77,619
Debt and other obligations 1,581,349 1,313,799
------------- -------------
Total liabilities 1,815,247 1,549,867
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 241 241
24,125,941 and 24,125,055, respectively
Additional capital 705,411 705,399
Accumulated deficit (383,653) (389,050)
Foreign currency translation adjustment (1,060) (1,157)
------------- -------------
320,939 315,433
------------- -------------
$ 2,136,186 $ 1,865,300
============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
5
<TABLE>
<CAPTION>
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(In Thousands Except Per Share Data)
- --------------------------------------------------------------------------------------------
THREE MONTHS
ENDED MARCH 31,
----------------------------------
(UNAUDITED)
1999 1998
------------- -------------
<S> <C> <C>
REVENUES:
Vehicle rentals $ 150,315 $ 135,057
Vehicle leasing 47,502 41,566
Fees and services 11,687 12,627
Other 2,047 2,082
------------- -------------
Total revenues 211,551 191,332
------------- -------------
COSTS AND EXPENSES:
Direct vehicle and operating 65,995 62,268
Vehicle depreciation and lease charges, net 69,636 66,949
Selling, general and administrative 43,920 39,202
Interest expense, net of interest income
of $1,093 and $2,430 19,851 18,644
Amortization of cost in excess of net
assets acquired 1,540 1,352
------------- -------------
Total costs and expenses 200,942 188,415
------------- -------------
INCOME BEFORE INCOME TAXES 10,609 2,917
INCOME TAX EXPENSE 5,212 2,095
------------- -------------
NET INCOME $ 5,397 $ 822
============= =============
Basic and diluted earnings per share $ 0.22 $ 0.03
============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
6
<TABLE>
<CAPTION>
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(In Thousands)
- --------------------------------------------------------------------------------------------
THREE MONTHS
ENDED MARCH 31,
--------------------------
(UNAUDITED)
1999 1998
----------- -----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 72,929 $ 80,628
CASH FLOWS FROM INVESTING ACTIVITIES:
Revenue-earning vehicles:
Purchases (816,989) (567,486)
Proceeds from sales 449,352 376,756
Restricted cash and investments, net 26,069 41,648
Property and equipment:
Purchases (4,037) (2,947)
Proceeds from sale 900 73
Acquisition of businesses, net of cash acquired - (1,014)
----------- -----------
Net cash used in investing activities (344,705) (152,970)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt and other obligations:
Proceeds 747,604 85,549
Payments (480,119) (47,111)
Issuance of common shares in public offering - 9,648
Vehicle financing issue costs (882) (2,460)
----------- -----------
Net cash provided by financing activities 266,603 45,626
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS (5,173) (26,716)
CASH AND CASH EQUIVALENTS:
Beginning of period 49,505 56,074
----------- -----------
End of period $ 44,332 $ 29,358
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
7
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
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1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Dollar Thrifty Automotive Group, Inc. and its subsidiaries (the
"Company"). The Company's significant wholly owned subsidiaries include
Dollar Rent A Car Systems, Inc.("Dollar")and Thrifty, Inc. ("Thrifty").
The accounting policies set forth in Note 2 to the consolidated
financial statements contained in the Form 10-K/A filed with the
Securities and Exchange Commission on March 19, 1999, have been
followed in preparing the accompanying consolidated financial
statements.
The consolidated financial statements and notes thereto for interim
periods included herein have not been audited by independent public
accountants. In the Company's opinion, all adjustments (which include
only normal recurring adjustments) necessary for a fair presentation of
the results of operations for the interim periods have been made.
Results for interim periods are not necessarily indicative of results
for a full year.
Certain amounts in the 1998 statement of operations have been
reclassified to conform with current year presentation.
2. VEHICLE DEPRECIATION AND LEASE CHARGES, NET
Vehicle depreciation and lease charges includes the following (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Depreciation of revenue-earning vehicles, net $ 67,895 $ 63,131
Rents paid for vehicles leased 1,741 3,818
------------ ------------
$ 69,636 $ 66,949
============ ============
</TABLE>
<PAGE>
8
3. 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 (in thousands except share and per share data):
THREE MONTHS
ENDED MARCH 31,
--------------------------------
1999 1998
------------ -----------
Net Income $ 5,397 $ 822
Basic EPS:
Weighted average common shares 24,125,705 24,049,360
Basic EPS $ 0.22 $ 0.03
=========== ===========
Diluted EPS:
Weighted average common shares 24,125,705 24,049,360
Shares contingently issuable:
Stock options 93,117 42,245
Performance awards 133,212 46,151
Director compensation shares deferred 9,109 -
----------- -----------
Shares applicable to diluted 24,361,143 24,137,756
----------- -----------
Diluted EPS $ 0.22 $ 0.03
=========== ===========
At March 31, 1999, options to purchase 1,156,864 shares of common stock
were outstanding but were not included in the computation of diluted
earnings per share because the options exercise price was greater than
the average market price of the common shares.
<PAGE>
9
4. DEBT AND OTHER OBLIGATIONS
Debt and other obligations as of March 31, 1999 and December 31, 1998
consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
VEHICLE DEBT AND OBLIGATIONS
<S> <C> <C>
Asset backed notes, net of discount $ 1,093,394 $ 1,182,998
Commercial paper, net of discount 440,363 79,786
Deferred vehicle rent 28,564 46,906
Other vehicle debt 18,836 4,008
------------ ------------
1,581,157 1,313,698
OTHER NOTES PAYABLE 192 101
------------ ------------
Total debt and other obligations $ 1,581,349 $ 1,313,799
============ ============
</TABLE>
On March 4, 1999, the Commercial Paper Program was renewed for another
year at a maximum size of $640 million, backed by a renewal of the
Liquidity Facility totaling $575 million.
On February 18, 1999, Thrifty completed a five-year CDN $150 million
(approximately US $109 million) program to finance its Canadian fleet.
The new financing also provides an additional CDN $15 million
(approximately US $9.8 million) revolving line of credit to fund
vehicle acquisitions. Under this new program, amounts advanced for the
purchase of vehicles are funded through the issuance of asset-backed
commercial paper by a conduit financing source. The existing Canadian
fleet financing will be phased out as the vehicles financed thereunder
are taken out of service.
5. BUSINESS SEGMENTS
The company has two reportable segments: Dollar and Thrifty. These
reportable segments are strategic business units that offer different
products and services. They are managed separately based on the
fundamental differences in their operations. The contributions of these
segments to revenues and income before income taxes for the three
months ended March 31, 1999 and 1998 are summarized below (in
thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, 1999 DOLLAR THRIFTY OTHER TOTAL
-------------------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $154,555 $56,831 $ 165 $211,551
Income before income taxes $ 5,795 $ 4,814 $ - $ 10,609
FOR THE THREE MONTHS
ENDED MARCH 31, 1998
--------------------------
Revenue $141,087 $49,944 $ 301 $191,332
Income before income taxes $ 938 $ 1,979 $ - $ 2,917
</TABLE>
<PAGE>
10
6. COMPREHENSIVE INCOME
Comprehensive income is comprised of the following (in thousands):
THREE MONTHS
ENDED MARCH 31,
----------------------------
1999 1998
--------- ---------
Net Income $ 5,397 $ 822
Foreign currency translation adjustment 97 60
--------- ---------
Comprehensive income $ 5,494 $ 882
========= =========
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.
8. SUBSEQUENT EVENTS
On April 29, 1999, the Company issued an additional $250 million of
asset backed notes ("1999 Series") for vehicle financing. Borrowings
under the 1999 Series are secured by eligible vehicles and related
collateral, bear interest at fixed rates from 5.9% to 7.1% and mature
through February 2005.
* * * * * * *
<PAGE>
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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,
1999 and 1998, the percentage of operating revenues represented by the items in
the Company's consolidated statement of income:
THREE MONTHS
ENDED MARCH 31, (a)
-------------------------
1999 1998
--------- ---------
(Percentage of revenues)
Revenues:
Vehicle rentals 71.1% 70.6%
Vehicle leasing 22.5% 21.7%
Fees and services 5.5% 6.6%
Other 0.9% 1.1%
--------- ---------
Total revenues 100.0% 100.0%
--------- ---------
Costs and expenses:
Direct vehicle and operating 31.2% 32.6%
Vehicle depreciation and lease charges, net 32.9% 35.0%
Selling, general and administrative 20.8% 20.5%
Interest expense, net 9.4% 9.7%
Amortization of cost in excess of
net assets acquired 0.7% 0.7%
--------- ---------
Total costs and expenses 95.0% 98.5%
--------- ---------
Income before income taxes 5.0% 1.5%
Income tax expense 2.5% 1.1%
--------- ---------
Net income 2.5% 0.4%
========= =========
- ------------------------------
(a) Certain reclassifications have been made in the 1998 consolidated
financial statements to conform to the classifications used in 1999.
<PAGE>
12
The Company's major sources of revenue are as follows:
THREE MONTHS
ENDED MARCH 31,
---------------------------
1999 1998
---------- ----------
(In Thousands)
Vehicle rental revenue:
Dollar $ 144,310 $ 127,945
Thrifty 6,005 7,112
---------- ----------
$ 150,315 $ 135,057
========== ==========
Vehicle leasing revenue:
Dollar $ 5,569 $ 7,019
Thrifty 41,933 34,547
---------- ----------
$ 47,502 $ 41,566
========== ==========
The following table sets forth certain selected operating data of the
Company for the three months ended March 31, 1999 and 1998:
THREE MONTHS
ENDED MARCH 31,
--------------------------
1999 1998
---------- ----------
COMPANY-OWNED STORES DATA
(U.S. AND CANADA)
Average number of vehicles operated 51,592 48,438
Number of rental transactions 817,578 762,058
Average revenue per transaction $ 184 $ 177
Monthly average revenue per vehicle $ 971 $ 929
VEHICLE LEASING DATA
(U.S. AND CANADA)
Average number of vehicles leased 34,146 32,691
Monthly average revenue per vehicle $ 464 $ 424
<PAGE>
13
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1998
REVENUES
Total revenue for the first quarter ended March 31, 1999 increased
$20.2 million, or 10.6%, to $211.6 million compared to first quarter of 1998.
The growth in total revenue was due to an increase in leasing revenue of 14.3%
and an increase in rental revenue of 11.3% over the first quarter of 1998. Fees
and services revenue declined $.9 million due primarily to a final payment
received related to Dollar's terminated European franchise agreement in the
first quarter of 1998. Vehicle rental revenue and vehicle leasing revenue were
impacted by the re-franchising of company-owned stores at Thrifty and by
franchise acquisitions at Dollar.
The Group's vehicle rental revenue for the first quarter of 1999 was
$150.3 million, a $15.3 million increase from the first quarter of 1998. This
higher revenue was due primarily to a $16.4 million increase for Dollar offset
by a $1.1 million decline at Thrifty. The growth in vehicle rental revenue at
Dollar was the result of an increase of 9.1% in transactions combined with a
3.3% increase in revenue per transaction. The rental revenue growth at Dollar
related to the acquisition of franchise operations and the opening of new
locations was $7.4 million, which represented 45% of Dollar's total rental
revenue growth in the first quarter. The decline at Thrifty was due to the
re-franchising of company-owned stores in 1998.
Vehicle leasing revenue for the first quarter of 1999 was $47.5
million, a $5.9 million increase from the first quarter of 1998. This increase
in vehicle leasing revenue reflects an increase of $7.4 million, or 21.4%, in
Thrifty's leasing revenue primarily due to a 10.5% increase in the average
number of vehicles leased to franchisees along with a 9.7% increase in the
vehicle leasing rates partially due to a change in vehicle mix. Dollar's leasing
revenue declined $1.5 million, or 20.7% due to a decrease in the average number
of vehicles leased to franchisees as a result of the acquisition of franchised
locations during 1998.
EXPENSES
Total expenses increased 6.6% from $188.4 million in the first quarter
of 1998 to $200.9 million in the first quarter of 1999. This increase was due
primarily to a $8.6 million, or 6.1% increase at Dollar and a $4.1 million, or
8.4% increase at Thrifty. Total expenses as a percentage of revenue declined to
95.0% in 1999 from 98.5% in 1998.
Direct and vehicle operating expenses for the first quarter of 1999
increased $3.7 million, or 6.0%, over the 1998 first quarter, comprised of a
$3.9 million increase at Dollar offset by a $.2 million decline at Thrifty. The
overall increase at Dollar was due to higher airport concession fees, travel
agent incentives and commissions partially offset by lower insurance costs. The
reduction of expenses at Thrifty was the result of re-franchising several
company-owned stores during 1998
Net vehicle depreciation expense and lease charges increased $2.7
million or 4.0% for the first quarter of 1999 as compared to the first quarter
of 1998, consisting of a $1.5 million increase at Dollar and a $1.2 million
increase at Thrifty. The increase was primarily due to a 7.3% increase (8.4% at
Dollar and 5.7% at Thrifty) in depreciable fleet partially offset by a $2.8
million net vehicle disposition gain on the disposal of Non-Program Vehicles
during the first quarter of 1999.
<PAGE>
14
Selling, general and administrative expenses of $43.9 million for 1999
increased 12.0% from $39.2 million in 1998, comprised of a $1.7 million increase
at Dollar and a $3.0 million increase at Thrifty. This increase was due
primarily to higher personnel costs, Year 2000 remediation costs, and costs
incurred with the start-up of Thrifty Car Sales. Selling, general and
administrative expenses for the Group were 20.8% of revenue for 1999 compared to
20.5% for 1998.
Net interest expense increased $1.2 million, or 6.5% to $19.9 million
in the first quarter of 1999 primarily due to a reduction in interest income
from restricted cash. During the first quarter of 1999, the Company had more
fully utilized the proceeds of its asset backed notes to finance growth in the
vehicle rental fleet.
The tax provision for the first quarter of 1999 was $5.2 million. The
effective rate of 49.1% in the first quarter of 1999 differs from the U.S.
statutory rate due primarily to non-deductible amortization costs in excess of
net assets acquired, state and local taxes and losses relating to Thrifty's
Canadian subsidiary for which no benefit was recorded. The improvement in the
effective rate as compared to first quarter 1998 was due to higher U.S. pre-tax
income and improved results in Canada in the first quarter of 1999.
Interim reporting requirements for applying separate, annual effective
income tax rates to U.S. and Canadian operations, combined with the seasonal
impact of Canadian operations, will cause significant variations in the
Company's quarterly consolidated effective income tax rates.
OPERATING RESULTS
The Group had income before income taxes of $10.6 million for 1999 as
compared to $2.9 million in 1998, a 263.7% increase. This growth was due to a
$4.9 million increase at Dollar and a $2.8 million increase at Thrifty.
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.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities and its financing arrangements
fund the Group's U.S. and Canadian operations. The Group's primary use of funds
is for the acquisition of revenue-earning vehicles. For the first quarter ended
March 31, 1999, the Group's expenditures for revenue-earning vehicles were
$705.1 million ($425.4 million at Dollar and $279.7 million at Thrifty) which
were partially offset by $338.9 million ($185.6 million at Dollar and $153.3
million at Thrifty) in proceeds from the sale of used vehicles.
<PAGE>
15
The Company expects the amount of cash required to purchase vehicles,
net of proceeds from the sale of used vehicles, to increase in 1999 because
rental fleets are increasing to meet anticipated rental demand. The Group
expects to meet these cash requirements with cash provided from operations and
its increased vehicle financing facilities. The Group's need for cash to finance
vehicles is highly seasonal and typically peaks in the second and third quarters
of the year when fleet levels build up to meet seasonal rental demand. Fleet
levels are lowest in the fourth quarter when rental demand is at a seasonal low.
The Company expects to continue to fund its revenue-earning vehicles with
secured financing.
The Group also requires cash for non-vehicle capital expenditures.
These expenditures totaled $4 million in the first quarter of 1999. These
expenditures are financed with cash provided from operations.
The Group has significant requirements for bonds and letters of credit
to support its insurance programs and airport concession obligations. At March
31, 1999, the insurance companies had issued approximately $100.3 million in
bonds to secure these obligations.
ASSET BACKED NOTES
The asset backed note program at March 31, 1999 was comprised of $1.1
billion in asset backed notes with maturities ranging from 1999 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 $37.4 million ranging from LIBOR plus .95%
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 investment accounts, which were approximately $36.2
million at March 31, 1999. On April 29, 1999, the Company issued an additional
$250 million of asset backed notes.
OTHER VEHICLE DEBT
Thrifty has financed its Canadian vehicle fleet under a lease agreement
with an unrelated auto leasing trust providing for CND$125 million
(approximately US$82 million) of funding, which is supported by underlying bank
financing that is required to be renewed annually. On February 18, 1999, Thrifty
established new arrangements for its Canadian vehicle financing through a
five-year fleet securitization program. Under this program, Thrifty can borrow
up to CND$150 million (approximately US$109 million) funded through a bank
commercial paper conduit. The previous facility will be phased out as the
vehicles financed thereunder are taken out of service. At March 31, 1999, the
Company had $42.4 million outstanding under these programs.
COMMERCIAL PAPER PROGRAM AND LIQUIDITY FACILITY
The Company established the commercial paper program on March 4, 1998
of up to $615 million (the "Commercial Paper Program") and concurrently,
established a 364 day, $545 million liquidity facility to support the Commercial
Paper Program (the "Liquidity Facility"). Borrowings under the Commercial Paper
Program are secured by eligible vehicle collateral and bear interest based on
market-dictated commercial paper rates. At March 31, 1999, the Group had $440.4
million in commercial paper outstanding under the Commercial Paper Program.
Effective March 4, 1999, the Commercial Paper Program was renewed for
another year at a maximum size of $640 million, backed by a renewal of the
Liquidity Facility totaling $575 million.
<PAGE>
16
REVOLVING CREDIT FACILITY
The Company has a $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 under the Revolving Credit Facility of approximately $29.5
million and no working capital borrowings at March 31, 1999.
DAIMLERCHRYSLER CREDIT SUPPORT
In December 1997, in connection with the Company's separation from
DaimlerChrysler Corporation ("DaimlerChrysler") and closing of the Company's
initial public offering, DaimlerChrysler provided $38.2 million credit support
for the Group's vehicle fleet financing in the form of a letter of credit
facility. The credit support was reduced to $28.6 million (the "Initial Support
Amount") due to exercise of a second over-allotment option in January 1998. The
Initial Support Amount will decline annually, beginning September 30, 1999, by
the greater of 20% of the Initial Support Amount or 50% of the Group's excess
cash flow. The Company may need to replace reductions in the Initial Support
Amount with cash from operations or with borrowings or letters of credit under
the Revolving Credit Facility. To secure reimbursement obligations under the
DaimlerChrysler credit support agreement, DaimlerChrysler has liens and security
interests on certain assets of the Group.
YEAR 2000
INTRODUCTION
The Year 2000 issue ("Y2K") relates to potential problems with computer
systems or any equipment employing technology that uses dates where the date has
been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any date
recording mechanism within the computer system, including date sensitive
software, which uses only two digits to represent the year may recognize a date
using 00 as the year 1900 rather than the year 2000. If this occurs, it could
cause system failures or miscalculations resulting in disruption of operations.
The Group's management recognizes the importance of ensuring that its
operations and material relationships with third parties will not be negatively
affected by interruptions caused from failure to be Y2K compliant. The Group has
formed committees to address Y2K compliance of its separate operating entities.
STATE OF READINESS
A formalized project began in 1997, in which the Group identified
mission-critical areas of information technology ("IT") for Y2K compliance
review. Hardware, software applications and other technologies, which in the
event of a failure would have a material adverse impact on the Group's business,
financial condition, or results of operations, are considered mission-critical.
These include fleet systems, reservation systems, counter systems, revenue
management systems, and financial systems.
<PAGE>
17
The Group is using a five-phase process to review each of its systems,
which includes awareness, assessment, renovation, validation, and
implementation. During the awareness phase, the Company inventories each system
to identify the components that require modification to become Y2K compliant.
Once identified, each component is assessed for its risk of failure and the
impact of potential failure to the Company's operations. During the next phase,
renovation, each system component is either modified or replaced in order to
meet Y2K requirements. Each system is then validated by installing it in a
separate testing environment that will simulate the Year 2000 and test for
compliance. Once the results of the validation phase verify that the date change
does not cause operational problems, the system is moved to the final phase of
implementation, at which time it is considered to be Y2K compliant and returned
to normal operation.
The Group has completed the awareness and assessment phases and is
currently in the renovation and validation phases of its mission-critical IT
systems. The renovation and validation phases are expected to be completed in
the second and third quarters of 1999. With regard to non-IT systems such as
phone systems, security systems, and elevator operations, the Group is currently
in the renovation and validation phases. All mission-critical systems that are
not already Y2K compliant will be modified, upgraded or replaced and are
anticipated to be compliant no later than September 30, 1999.
During the first quarter of 1998, the Group began sending inquiries to
third parties with whom it transacts significant business requesting assurances
of Y2K compliance. The Group continues to make additional inquiries to third
parties seeking Y2K assurances as well as collecting responses, discussing
concerns, and sending follow-up inquiries requesting status of remediation
plans. Dollar and Thrifty have also been advising their independent franchisees
of the need to conduct their own Y2K assessments.
COSTS
The Group's costs to remediate Y2K issues are projected to total $6.8
million. Of this total, $4.3 million has been incurred as of March 31, 1999 and
$2.5 million is expected to be incurred during the remainder of 1999. Certain IT
projects to enhance systems and improve operating efficiencies are being delayed
due to Y2K compliance efforts. The Group's Y2K costs for 1999 represent
approximately 15% of the total annual IT budget and will be funded through its
internal cash flow.
RISKS
Like many organizations, the Group relies on third parties such as
telecommunication companies, airlines, vehicle manufacturers, travel agents,
credit card processors, banks, utilities, and also its independent franchisees.
The Group recognizes that failure to resolve Y2K issues could result in
disruptions in operations. In the worst case, non-compliance by the Group
regarding Y2K issues may result in significant interruptions in business flow
including failure to process rental transactions efficiently and inability to
invoice or process payments. Third party failures may result in additional
business interruptions such as airline, FAA, travel agent, and tour company
failures causing reduction of travel and tourism revenues, telecommunication
failures resulting in inability to process reservations and service clientele,
and vehicle manufacturer or vehicle delivery source failures causing shortages
of vehicles. Failure of independent franchisees to be Y2K compliant could result
in disruptions in the Dollar and Thrifty vehicle rental systems, and potentially
affect fees and vehicle leasing revenues received from these independent
parties. Accordingly, third party Y2K failures could significantly limit the
Group's revenue-earning potential and result in a material adverse effect on the
Group's business, financial condition, and results of operations.
<PAGE>
18
CONTINGENCY PLANS
The Group is in the process of developing basic contingency plans to
cover all mission-critical processes that could result in a material adverse
impact on the Group's operations. The Group plans to continually refine these
plans as more information becomes available from third parties and through
completion of the validation phase of the Group's remediation plan. The Group
intends to have a formalized contingency plan in place no later than the third
quarter of 1999.
Management believes that the Group is taking adequate actions to
remediate all of its mission-critical IT and its non-IT systems. Nevertheless,
since it is impossible to anticipate all future outcomes, especially when third
parties are involved, there can be no assurance that the Group will not
experience disruptions in operations that could materially and adversely affect
the Group's business, results of operations, and financial condition.
NEW ACCOUNTING STANDARDS
Effective January 1, 1999, the Company adopted 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 and requires
that entities capitalize certain internal-use software costs once certain
criteria are met. The Company does not expect its adoption will have a material
impact on its consolidated financial statements.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that all derivatives be
recognized as either assets or liabilities in the statement of financial
position and be measured at fair value. SFAS No. 133 is effective for the
Company beginning January 1, 2000. The Company plans to adopt the standard when
required.
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, 1998 included under Item 7 of the Company's most recent
Form 10-K/A.
<PAGE>
19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 2, 1997, a purported class action suit was filed in the
Circuit Court of Coosa County, Alabama, against Dollar, Thrifty and other car
rental companies. The plaintiffs in this suit alleged violations of state law in
connection with the sale by the car 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. Dollar, Thrifty and other car rental companies filed a motion to
dismiss the conspiracy claim portion of the suit, which dismissal was granted.
On April 10, 1999, the Court dismissed the case in its entirety with prejudice.
Plaintiffs intend to appeal.
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 5. OTHER INFORMATION
On April 29, 1999, the Company issued an additional $250 million of
asset backed notes ("1999 Series"). Borrowings under the 1999 Series are secured
by eligible vehicles and related collateral and bear interest at fixed rates
from 5.9% to 7.1%.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) INDEX OF EXHIBITS
-----------------
Exhibit 27.1 Financial Data Schedule (EDGAR version only)
(b) REPORTS ON FORM 8-K
-------------------
No report on Form 8-K was filed by the Company during or applicable to
the quarter ended March 31, 1999.
<PAGE>
20
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
10, 1999.
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 Principal Accounting Officer
<PAGE>
21
EXHIBIT 27.1 Financial Data Schedule (Edgar Version Only)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of March 31, 1999 and the Consolidated Statement
of Income and Condensed Consolidated Statement of Cash Flows for the Three
Months Ended March 31, 1999 and 1998 and is qualified in its entirety by
reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 80,518
<SECURITIES> 0
<RECEIVABLES> 132,698
<ALLOWANCES> 16,886
<INVENTORY> 1,641,808<F1>
<CURRENT-ASSETS> 0<F2>
<PP&E> 122,973
<DEPRECIATION> 51,368
<TOTAL-ASSETS> 2,136,186
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 1,581,349
0
0
<COMMON> 241
<OTHER-SE> 320,698
<TOTAL-LIABILITY-AND-EQUITY> 2,136,186
<SALES> 0
<TOTAL-REVENUES> 211,551
<CGS> 0
<TOTAL-COSTS> 135,631
<OTHER-EXPENSES> 1,540
<LOSS-PROVISION> 1,808
<INTEREST-EXPENSE> 19,851
<INCOME-PRETAX> 10,609
<INCOME-TAX> 5,212
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,397
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
<FN>
<F1>ITEM REFERS TO REVENUE-EARNING VEHICLES, NET.
<F2>REGISTRANT'S FINANCIAL STATEMENTS INCLUDE AN UNCLASSIFIED BALANCE SHEET.
</FN>
</TABLE>
