<PAGE>
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UNITED STATES
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 September 30, 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
November 1, 1999 was 24,147,514.
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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.............................19
PART II - OTHER INFORMATION...................................................19
ITEM 1. LEGAL PROCEEDINGS.........................................19
ITEM 5. OTHER INFORMATION.........................................20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................20
SIGNATURES....................................................................21
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 September 30, 1999, and the
related consolidated statement of income for the three-month and nine-month
periods ended September 30, 1999 and 1998, and the condensed consolidated
statement of cash flows for the nine-month periods ended September 30, 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
October 19, 1999
<PAGE>
4
<TABLE>
<CAPTION>
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------
(In Thousands Except Share Data)
September 30, December 31,
1999 1998
------------- -------------
(Unaudited)
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 88,886 $ 49,505
Restricted cash and investments 71,265 62,255
Accounts and notes receivable, net 136,386 115,423
Prepaid expenses and other assets 44,011 42,186
Revenue-earning vehicles, net 1,810,393 1,342,066
Property and equipment, net 72,865 70,897
Deferred income taxes 5,861 8,554
Intangible assets, net 171,281 174,414
------------- -------------
$ 2,400,948 $ 1,865,300
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 43,120 $ 60,862
Accrued liabilities 113,391 88,426
Income taxes payable 11,647 9,161
Public liability and property damage 61,229 77,619
Debt and other obligations 1,802,617 1,313,799
------------- -------------
Total liabilities 2,032,004 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
24,145,277 and 24,125,055, respectively 241 241
Additional capital 706,023 705,399
Accumulated deficit (336,455) (389,050)
Foreign currency translation adjustment (865) (1,157)
------------- -------------
368,944 315,433
------------- -------------
$ 2,400,948 $ 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 AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- ---------------------------------------------------------------------------------------------------------------------
(In Thousands Except Per Share Data)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
(Unaudited)
1999 1998 1999 1998
--------- --------- --------- ---------
REVENUES:
<S> <C> <C> <C> <C>
Vehicle rentals $217,202 $197,724 $551,153 $492,150
Vehicle leasing 63,497 59,782 170,429 153,620
Fees and services 16,634 14,796 42,808 40,514
Other 2,023 2,399 5,867 6,926
--------- --------- --------- ---------
Total revenues 299,356 274,701 770,257 693,210
--------- --------- --------- ---------
COSTS AND EXPENSES:
Direct vehicle and operating 81,629 74,135 223,271 202,867
Vehicle depreciation and lease charges, net 88,074 90,540 236,609 236,314
Selling, general and administrative 48,686 40,721 140,842 120,679
Interest expense, net of interest income 27,491 25,936 72,014 67,253
Amortization of cost in excess of net
assets acquired 1,440 1,349 4,382 4,046
--------- --------- --------- ---------
Total costs and expenses 247,320 232,681 677,118 631,159
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 52,036 42,020 93,139 62,051
INCOME TAX EXPENSE 21,826 17,869 40,544 27,865
--------- --------- --------- ---------
NET INCOME $ 30,210 $ 24,151 $ 52,595 $ 34,186
========= ========= ========= =========
EARNINGS PER SHARE:
Basic $ 1.25 $ 1.00 $ 2.18 $ 1.42
========= ========= ========= =========
Diluted $ 1.23 $ 1.00 $ 2.15 $ 1.42
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
6
<TABLE>
<CAPTION>
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- ---------------------------------------------------------------------------------------------------------
(In thousands)
Nine Months
Ended September 30,
--------------------------------
(Unaudited)
1999 1998
------------- -------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 284,196 $ 259,445
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Revenue-earning vehicles:
Purchases (1,934,533) (1,499,334)
Proceeds from sales 1,223,327 970,590
Restricted cash and investments, net (9,010) 95,104
Property and equipment
Purchases (11,292) (12,674)
Proceeds from sale 990 985
Acquisition of businesses, net of cash acquired - (1,014)
------------- -------------
Net cash used in investing activities (730,518) (446,343)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt and other obligations:
Proceeds 3,357,620 1,193,277
Payments (2,869,018) (1,003,194)
Issuance of common shares 322 9,648
Vehicle financing issue costs (3,221) (3,732)
------------- -------------
Net cash provided by financing activities 485,703 195,999
------------- ------------
CHANGE IN CASH AND CASH EQUIVALENTS 39,381 9,101
CASH AND CASH EQUIVALENTS:
Beginning of period 49,505 56,074
------------- ------------
End of period $ 88,886 $ 65,175
============= ============
SUPPLEMENTAL DISCLOSURE OF NONCASH
OPERATING AND INVESTING ACTIVITIES:
Issuance of notes receivable for sale of revenue-earning vehicles $ 13,109 $ --
============= ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
7
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
(UNAUDITED)
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 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 Nine Months
Ended September 30, Ended September 30,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Depreciation of revenue-earning vehicles, net $ 85,198 $ 83,981 $ 229,770 $ 221,732
Rents paid for vehicles leased 2,876 6,559 6,839 14,582
---------- ---------- ---------- ----------
$ 88,074 $ 90,540 $ 236,609 $ 236,314
========== ========== ========== ==========
</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):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 30,210 $ 24,151 $ 52,595 $ 34,186
Basic EPS:
Weighted average common shares 24,145,008 24,127,980 24,132,940 24,102,061
Basic EPS $ 1.25 $ 1.00 $ 2.18 $ 1.42
=========== =========== =========== ===========
Diluted EPS:
Weighted average common shares 24,145,008 24,127,980 24,132,940 24,102,061
Shares contingently issuable:
Stock options 261,202 4,925 199,121 4,961
Performance awards 130,817 23,232 132,080 23,232
Director compensation shares deferred 12,860 -- 11,045 --
----------- ----------- ----------- -----------
Shares applicable to diluted 24,549,887 24,156,137 24,475,186 24,130,254
----------- ----------- ----------- -----------
Diluted EPS $ 1.23 $ 1.00 $ 2.15 $ 1.42
=========== =========== =========== ===========
</TABLE>
At September 30, 1999, options to purchase 1,140,485 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 consist of the following (in thousands):
September 30, December 31,
1999 1998
------------ ------------
Vehicle Debt and Obligations:
Asset backed notes, net of discount $ 1,343,234 $ 1,182,998
Commercial paper, net of discount 319,939 79,786
Canadian vehicle financing 75,198 -
Ford Motor Credit Company 47,069 -
Deferred vehicle rent - 46,906
Other vehicle debt 17,014 3,884
------------ ------------
1,802,454 1,313,574
Other Notes Payable 163 225
------------ ------------
Total debt and other obligations $ 1,802,617 $ 1,313,799
============ ============
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 and nine
months ended September 30, 1999 and 1998 are summarized below (in
thousands):
For the Three Months
Ended September 30, 1999 Dollar Thrifty Other Total
- ------------------------ -------- -------- -------- --------
Revenues $221,880 $ 77,267 $ 209 $299,356
Income before income taxes $ 38,742 $ 13,294 $ -- $ 52,036
For the Three Months
Ended September 30, 1998 Dollar Thrifty Other Total
- ------------------------ -------- -------- -------- --------
Revenues $203,660 $ 70,782 $ 259 $274,701
Income before income taxes $ 32,587 $ 9,433 $ -- $ 42,020
<PAGE>
10
For the Nine Months
Ended September 30, 1999 Dollar Thrifty Other Total
- ------------------------ -------- -------- -------- --------
Revenues $565,725 $204,005 $ 527 $770,257
Income before income taxes $ 67,445 $ 25,694 $ -- $ 93,139
For the Nine Months
Ended September 30, 1998 Dollar Thrifty Other Total
- ------------------------ -------- -------- ------- --------
Revenues $510,110 $182,437 $ 663 $693,210
Income before income taxes $ 45,597 $ 16,454 $ -- $ 62,051
6. COMPREHENSIVE INCOME
Comprehensive income is comprised of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net income $ 30,210 $ 24,151 $ 52,595 $ 34,186
Foreign currency translation adjustment 62 (200) 292 (333)
---------- ---------- ---------- ---------
Comprehensive income $ 30,272 $ 23,951 $ 52,887 $ 33,853
========== ========== ========== =========
</TABLE>
7. CONTINGENCIES
Various claims and legal proceedings have been asserted or instituted
against the Company, including some purporting to be class actions, and
some which demand large monetary damages or other relief which could result
in significant expenditures. Litigation is subject to many uncertainties,
and the outcome of individual matters is not predictable with assurance.
The Company is also subject to potential liability related to environmental
matters. The Company establishes reserves for litigation and environmental
matters when the loss is probable and reasonably estimated. 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.
*******
<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 and nine months
ended September 30, 1999 and 1998, the percentage of operating revenues
represented by the items in the Company's consolidated statement of income:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, (a) Ended September 30, (a)
------------------------ -----------------------
(Percentage of Revenues)
1999 1998 1999 1998
-------- -------- -------- --------
Revenues:
<S> <C> <C> <C> <C>
Vehicle rentals 72.5% 72.0% 71.5% 71.0%
Vehicle leasing 21.2% 21.8% 22.1% 22.2%
Fees and services 5.6% 5.4% 5.6% 5.8%
Other 0.7% 0.8% 0.8% 1.0%
-------- -------- -------- --------
Total revenues 100.0% 100.0% 100.0% 100.0%
-------- -------- -------- --------
Costs and expenses:
Direct vehicle and operating 27.3% 27.0% 29.0% 29.3%
Vehicle depreciation and lease charges, net 29.4% 33.0% 30.7% 34.1%
Selling, general and administrative 16.3% 14.8% 18.3% 17.4%
Interest expense, net of interest income 9.2% 9.4% 9.3% 9.7%
Amortization of cost in excess of net
assets acquired 0.4% 0.5% 0.6% 0.6%
-------- -------- -------- --------
Total costs and expenses 82.6% 84.7% 87.9% 91.1%
-------- -------- -------- --------
Income before income taxes 17.4% 15.3% 12.1% 8.9%
Income tax expense 7.3% 6.5% 5.3% 4.0%
-------- -------- -------- --------
Net income 10.1% 8.8% 6.8% 4.9%
======== ======== ======== ========
</TABLE>
- --------------------------------------------------------
(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:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- -------------------------
(In Thousands)
1999 1998 1999 1998
---------- ---------- ---------- ----------
Vehicle rental revenue:
<S> <C> <C> <C> <C>
Dollar $ 205,940 $ 187,114 $ 525,011 $ 466,237
Thrifty 11,262 10,610 26,142 25,913
---------- ---------- ---------- ----------
$ 217,202 $ 197,724 $ 551,153 $ 492,150
========== ========== ========== ==========
Vehicle leasing revenue:
Dollar $ 8,856 $ 9,865 $ 22,557 $ 25,495
Thrifty 54,641 49,917 147,872 128,125
---------- ---------- ---------- ----------
$ 63,497 $ 59,782 $ 170,429 $ 153,620
========== ========== ========== ==========
</TABLE>
The following table sets forth certain selected operating data of the Company
for the three months and nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Company-Owned Stores Data
(U.S. and Canada)
<S> <C> <C> <C> <C>
Average number of vehicles operated 68,651 63,102 60,451 55,504
Number of rental transactions 1,000,494 914,357 2,769,392 2,545,254
Average revenue per transaction $ 217 $ 216 $ 199 $ 193
Monthly average revenue per vehicle $ 1,055 $ 1,044 $ 1,013 $ 985
Vehicle Leasing Data
(U.S. and Canada)
Average number of vehicles leased 44,435 43,121 40,006 38,298
Monthly average revenue per vehicle $ 476 $ 462 $ 473 $ 446
</TABLE>
<PAGE>
13
THREE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES
Total revenues for the quarter ended September 30, 1999 increased $24.7
million, or 9.0%, to $299.4 million compared to the third quarter of 1998. The
growth in total revenue was due to an increase in vehicle rental revenue of 9.9%
and an increase in vehicle leasing revenue of 6.2% over the third quarter of
1998.
The Group's vehicle rental revenue for the third quarter of 1999 was
$217.2 million, a $19.5 million increase (a $18.8 million increase for Dollar
and a $0.7 million increase at Thrifty) from the third quarter of 1998. The
growth in vehicle rental revenue at Dollar was the result of an increase of 9.9%
in transactions while revenue per transaction remained constant. The vehicle
rental revenue growth at Dollar that related to the acquisition of franchise
operations was $3.3 million, which represented 17.6% of Dollar's total vehicle
rental revenue growth in the third quarter.
Vehicle leasing revenue for the third quarter of 1999 was $63.5
million, a $3.7 million increase from the third quarter of 1998. This higher
revenue reflects an increase of $4.7 million, or 9.5%, in Thrifty's leasing
revenue primarily due to a 7.0% increase in the average number of vehicles
leased to franchisees along with a 2.2% increase in the vehicle leasing rates
partially due to a change in vehicle mix. Dollar's leasing revenue declined $1.0
million, or 10.2%, due to a 16.8% decline in the average number of vehicles
leased to franchisees as a result of franchise acquisitions in 1998, partially
offset by an increase in lease rates.
EXPENSES
Total expenses increased 6.3% from $232.7 million in the third quarter
of 1998 to $247.3 million in the third quarter of 1999. This increase was due
primarily to a $12.1 million, or 7.1% increase at Dollar and a $2.6 million, or
4.3% increase at Thrifty. Total expenses as a percentage of revenue declined to
82.6% in 1999 from 84.7% in 1998.
Direct and vehicle operating expenses for the third quarter of 1999
increased $7.5 million, or 10.1%, over the 1998 third quarter, comprised of a
$8.2 million increase at Dollar and a $0.7 million decrease at Thrifty. The
overall increase at Dollar was due to higher airport concession rents, personnel
and vehicle operating costs partially offset by lower insurance costs. The
decrease at Thrifty was due primarily to improvements in fleet-related costs.
Net vehicle depreciation expense and lease charges decreased $2.5
million, or 2.7%, in the third quarter of 1999 as compared to the third quarter
of 1998, consisting of a $2.1 million decrease at Dollar and a $0.4 million
decrease at Thrifty. Net vehicle depreciation expense increased $1.2 million, or
1.4%, due to a 10.4% increase in depreciable fleet (9.6% at Dollar and 11.8% at
Thrifty), offset by an 8.1% decline in depreciation rate. The decline in the
depreciation rate includes $9.7 million in net vehicle gains on the disposal of
non-program vehicles during the third quarter of 1999. Lease charges, for
vehicles leased from third parties, declined $3.7 million due to fewer vehicles
leased in the third quarter of 1999.
Selling, general and administrative expenses of $48.7 million for the
third quarter of 1999 increased 19.6% from $40.7 million in the third quarter of
1998, comprised of a $5.0 million increase at Dollar and a $3.0 million increase
at Thrifty. This increase was due primarily to higher information technology
system costs including Year 2000 remediation, costs incurred with the start-up
of Thrifty Car Sales, and other personnel related costs.
Net interest expense increased $1.6 million, or 6.0% to $27.5 million
in the third quarter of 1999 primarily due to higher average vehicle debt levels
partially offset by a decrease in vehicle interest rates.
<PAGE>
14
The effective tax rate for the third quarter of 1999 was 41.9%. This
tax rate differs from the U.S. statutory rate due primarily to non-deductible
amortization costs in excess of net assets acquired and state and local taxes.
The improvement in the effective rate as compared to the third quarter of 1998
was due to higher U.S. pre-tax income and improved results in Canada in the
third 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
Income before income taxes increased $10.0 million, or 23.8% to $52.0
million for the third quarter of 1999. This growth was due to a $6.1 million
increase at Dollar and a $3.9 million increase at Thrifty.
NINE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES
Total revenues for the nine months ended September 30, 1999 increased
$77.0 million, or 11.1%, to $770.3 million compared to the nine months ended
September 30, 1998. The growth in total revenue was due to an increase in
vehicle rental revenue of 12.0% and an increase in vehicle leasing revenue of
10.9% over the nine months ended September 30, 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 nine months ended September
30, 1999 was $551.2 million, a $59.0 million increase (a $58.8 million increase
for Dollar and a $0.2 million increase at Thrifty) from the nine months ended
September 30, 1998. The growth in vehicle rental revenue at Dollar was the
result of a 9.4% increase in transactions combined with a 3.0% increase in
revenue per transaction. The rental revenue growth at Dollar that related to the
acquisition of franchise operations was $15.0 million, which represented 25.5%
of Dollar's total vehicle rental revenue growth in the nine months ended
September 30, 1999.
Vehicle leasing revenue for the nine months ended September 30, 1999
was $170.4 million, a $16.8 million increase (a $19.7 million increase at
Thrifty and a $2.9 million decline at Dollar) from the nine months ended
September 30, 1998. The higher revenue at Thrifty is primarily due to a 8.9%
increase in the average number of vehicles leased to franchisees along with a
5.8% increase in the vehicle leasing rates partially due to a change in vehicle
mix. Dollar's vehicle leasing revenue declined due to a decrease in the average
number of vehicles leased to franchisees as a result of the acquisition of
franchised locations in 1998 partially offset by an increase in lease rates.
EXPENSES
Total expenses increased 7.3% from $631.2 million for the nine months
ended September 30, 1998 to $677.1 million for the nine months ended September
30, 1999. This increase was due primarily to a $33.8 million, or 7.3% increase
at Dollar and a $12.3 million, or 7.4% increase at Thrifty. Total expenses as a
percentage of revenue declined to 87.9% in 1999 from 91.1% in 1998.
<PAGE>
15
Direct and vehicle operating expenses for the nine months ended
September 30, 1999 increased $20.4 million, or 10.1%, compared to the nine
months ended September 30, 1998, comprised of a $19.3 million increase at Dollar
and a $1.1 million increase at Thrifty. The overall increase at Dollar was due
to higher airport concession rents, personnel and other vehicle operating costs
partially offset by lower insurance costs. The increase at Thrifty was due
primarily to higher lease program costs.
Net vehicle depreciation expense and lease charges increased $0.3
million or 0.1% for the nine months ended September 30, 1999 as compared to the
nine months ended September 30, 1998, consisting of a $1.2 million decrease at
Dollar and a $1.5 million increase at Thrifty. Net vehicle depreciation expense
increased $8.0 million, or 3.6%, due to a 10.7% increase in depreciable fleet
(11.3% at Dollar and 9.8% at Thrifty) offset by a 6.2% decline in depreciation
rate. The decline in depreciation rate includes $21.9 million in net vehicle
gains on the disposal of non-program vehicles during the nine months ended
September 30, 1999. Lease charges, for vehicles leased from third parties,
declined $7.7 million due to fewer vehicles leased in the nine months ended
September 30, 1999.
Selling, general and administrative expenses of $140.8 million for the
nine months ended September 30, 1999 increased 16.7% from $120.7 million in
1998, comprised of a $11.7 million increase at Dollar and a $8.4 million
increase at Thrifty. This increase was due primarily to higher information
technology system costs including Year 2000 remediation, costs incurred with the
start-up of Thrifty Car Sales, and other personnel related costs.
Net interest expense increased $4.8 million, or 7.1% to $72.0 million
for the nine months ended September 30, 1999 primarily due to higher average
vehicle debt levels partially offset by a decrease in vehicle interest rates.
The effective tax rate for the nine months ended September 30, 1999 was
43.5%. This rate differs from the U.S. statutory rate due primarily to
non-deductible amortization costs in excess of net assets acquired and state and
local taxes. The improvement in the effective rate as compared to the nine
months ended September 30, 1998 was due to higher U.S. pre-tax income and
improved results in Canada in the nine months ended September 30, 1999.
OPERATING RESULTS
The Group had income before income taxes of $93.1 million for the nine
months ended September 30, 1999 as compared to $62.1 million for the nine months
ended September 30, 1998, a 50.1% increase. This growth was due to a $21.8
million increase at Dollar and a $9.2 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.
<PAGE>
16
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 nine month period
ended September 30, 1999, the Group's expenditures for revenue-earning vehicles
were $1.9 billion ($1.2 billion at Dollar and $0.7 billion at Thrifty) which
were partially offset by $1.2 billion ($0.8 billion at Dollar and $0.4 billion
at Thrifty) in proceeds from the sale of used vehicles.
The amount of cash used to purchase vehicles, net of proceeds from the
sale of used vehicles, was $700 million. This cash requirement was met by
increasing vehicle debt $489 million and from cash provided by operating
activities. 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 $11.3 million for the nine months ended September 30,
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
September 30, 1999, the insurance companies had issued approximately $79.8
million in bonds to secure these obligations.
ASSET BACKED NOTES
The asset backed note program at September 30, 1999 was comprised of
$1.34 billion in asset backed notes with maturities ranging from 2000 to 2005.
Borrowings under the asset backed notes are secured by eligible vehicle
collateral and bear interest at fixed rates on $1,306.6 million ranging from
5.90% to 7.10% 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 $64.3
million at September 30, 1999.
COMMERCIAL PAPER PROGRAM AND LIQUIDITY FACILITY
The Company has a commercial paper program of up to $640 million and a
364-day, $575 million liquidity facility to support the commercial paper
program. Borrowings under the commercial paper program are secured by eligible
vehicle collateral and bear interest based on market-dictated commercial paper
rates. At September 30, 1999, the Group had $319.9 million in commercial paper
outstanding under its commercial paper program. The commercial paper program and
the liquidity facility are renewable annually.
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$85 million at September 30, 1999) of funding, which is
supported by underlying bank financing. This facility was phased out as the
vehicles financed thereunder were taken out of service with all financing
arrangements terminated. 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$102 million at September 30, 1999) funded through a
bank commercial paper conduit. At September 30, 1999, the Company had $75.2
million outstanding under this program.
<PAGE>
17
On May 20, 1999, Ford Motor Credit Company extended a $102 million
revolving line of credit to the Group to purchase revenue-earning vehicles. The
line of credit is secured by the vehicles financed under this facility. This
credit facility has a one-year term and is renewable for successive one-year
terms by mutual agreement. At September 30, 1999, the Company had $47.1 million
outstanding.
REVOLVING CREDIT FACILITY
The Company has a $215 million five-year, senior secured, revolving
credit facility (the "Revolving Credit Facility") that expires December 2002.
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 $68.4 million and no working capital borrowings
at September 30, 1999.
DAIMLERCHRYSLER CREDIT SUPPORT
In connection with the Company's separation from DaimlerChrysler
Corporation ("DaimlerChrysler") and completion of the Company's initial public
offering, in December 1997, DaimlerChrysler provided $28.6 million credit
support for the Group's vehicle fleet financing in the form of a letter of
credit facility. The letter of credit amount will decline annually over five
years beginning September 30, 1999, by the greater of $5.7 million or 50% of the
Group's excess cash flow. At September 30, 1999, the credit support amount was
approximately $22.9 million. The Company will need to replace reductions in the
letter of credit 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>
18
The Group has used a five-phase process to review each of its systems,
which includes awareness, assessment, renovation, validation, and
implementation. During the awareness phase, the Company inventoried each system
to identify the components that required modification to become Y2K compliant.
Once identified, each component was 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 was either modified or replaced in order to
meet Y2K requirements. Each system was then validated by installing it in a
separate testing environment that simulated the Year 2000 and tested for
compliance. Once the results of the validation phase verified that the date
change did not cause operational problems, the system was moved to the final
phase of implementation, at which time it was considered to be Y2K compliant and
returned to normal operation. The Group has completed all phases with respect to
its mission-critical IT and non-IT systems.
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 $7.0
million. Of this total, $6.5 million has been incurred as of September 30, 1999
and $0.5 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 are being 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.
CONTINGENCY PLANS
The Group has developed basic contingency plans to cover all
mission-critical processes that could result in a material adverse impact on the
Group's operations. The Group will continue to refine these plans.
<PAGE>
19
Management believes that the Group has taken 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 adoption of SOP 98-1 did not have a material impact on the
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. During 1999, the Financial Accounting
Standards Board delayed the effective date of SFAS No. 133 for one year to
fiscal years beginning after June 15, 2000. SFAS No. 133 is effective for the
Company beginning January 1, 2001. 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 7A. of the Company's most
recent Form 10-K/A.
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
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 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.
<PAGE>
20
ITEM 5. OTHER INFORMATION
-----------------
On September 23, 1999, the Company approved the granting of 455,200
stock options to approximately 194 employees, including each of the executive
officers at an exercise price of $19.1875 per share. These options vest in three
equal annual installments commencing on September 30, 2000, and expire on
September 22, 2009. Under certain circumstances, including a change of control
of the Company, the options would be exercisable immediately.
The Company has rescheduled the date of its Annual Meeting of
Stockholders to May 25, 2000.
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
-------------------
None
<PAGE>
21
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
November 12, 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of September 30, 1999 and the Consolidated
Statement of Income for the Three Months and Nine Months Ended September 30,
1999 and 1998 and Condensed Statement of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 and is qualified in its entirety by reference to
such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 160,151
<SECURITIES> 0
<RECEIVABLES> 156,342
<ALLOWANCES> 19,956
<INVENTORY> 1,810,393<F1>
<CURRENT-ASSETS> 0<F2>
<PP&E> 128,856
<DEPRECIATION> 55,991
<TOTAL-ASSETS> 2,400,948
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 1,802,617
0
0
<COMMON> 241
<OTHER-SE> 368,703
<TOTAL-LIABILITY-AND-EQUITY> 2,400,948
<SALES> 0
<TOTAL-REVENUES> 770,257
<CGS> 0
<TOTAL-COSTS> 459,880
<OTHER-EXPENSES> 4,382
<LOSS-PROVISION> 8,773
<INTEREST-EXPENSE> 72,014
<INCOME-PRETAX> 93,139
<INCOME-TAX> 40,544
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,595
<EPS-BASIC> 2.18
<EPS-DILUTED> 2.15
<FN>
<F1>ITEM REFERS TO REVENUE-EARNING VEHICLES, NET.
<F2>REGISTRANT'S FINANCIAL STATEMENTS INCLUDE AN UNCLASSIFIED BALANCE SHEET.
</FN>
</TABLE>
