<PAGE>
================================================================================
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, 2000
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
October 31, 2000 was 24,175,061.
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<PAGE>
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...................................................18
ITEM 1. LEGAL PROCEEDINGS.........................................18
ITEM 5. OTHER INFORMATION.........................................18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................18
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: price and product competition, economic and competitive
conditions in markets and countries where our customers reside and where our
companies and their franchisees operate; changes in capital availability or
cost; costs and other terms related to the acquisition and disposition of
automobiles and conducting business; 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.
2
<PAGE>
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, 2000, and the
related consolidated statement of income for the three-month and nine-month
periods ended September 30, 2000 and 1999, and the condensed consolidated
statement of cash flows for the nine-month periods ended September 30, 2000 and
1999. 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Dollar Thrifty Automotive Group, Inc. and subsidiaries as of December 31, 1999,
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 2, 2000, except for Note 17, as to which the date is March 2,
2000, we expressed an unqualified opinion on those consolidated financial
statements.
DELOITTE & TOUCHE LLP
Tulsa, Oklahoma
October 18, 2000
3
<PAGE>
<TABLE>
<CAPTION>
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
--------------------------------------------------------------------------------------------------------------
(In Thousands Except Per Share Data)
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- -----------------------
(Unaudited)
2000 1999 2000 1999
--------- --------- --------- ---------
REVENUES:
<S> <C> <C> <C> <C>
Vehicle rentals $244,340 $217,202 $632,349 $551,153
Vehicle leasing 58,769 63,497 156,801 170,429
Fees and services 17,110 16,634 47,152 42,808
Other 2,691 2,023 7,754 5,867
--------- --------- --------- ---------
Total revenues 322,910 299,356 844,056 770,257
--------- --------- --------- ---------
COSTS AND EXPENSES:
Direct vehicle and operating 85,899 81,629 240,055 223,271
Vehicle depreciation and lease charges, net 100,161 88,074 257,830 236,609
Selling, general and administrative 44,915 48,686 141,606 140,842
Interest expense, net of interest income 29,381 27,491 74,682 72,014
Amortization of cost in excess of net
assets acquired 1,489 1,440 4,397 4,382
--------- --------- --------- ---------
Total costs and expenses 261,845 247,320 718,570 677,118
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 61,065 52,036 125,486 93,139
INCOME TAX EXPENSE 25,101 21,826 53,449 40,544
--------- --------- --------- ---------
NET INCOME $ 35,964 $ 30,210 $ 72,037 $ 52,595
========= ========= ========= =========
EARNINGS PER SHARE:
Basic $ 1.49 $ 1.25 $ 2.98 $ 2.18
========= ========= ========= =========
Diluted $ 1.46 $ 1.23 $ 2.93 $ 2.15
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
------------------------------------------------------------------------------------------------------
(In Thousands Except Share Data)
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 94,286 $ 77,500
Restricted cash and investments 94,609 144,671
Receivables, net 144,297 140,156
Prepaid expenses and other assets 56,549 43,493
Revenue-earning vehicles, net 1,947,636 1,507,692
Property and equipment, net 77,946 69,941
Income tax receivable - 10,573
Intangible assets, net 179,827 177,627
------------ ------------
$ 2,595,150 $ 2,171,653
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 80,227 $ 57,242
Accrued liabilities 120,367 115,232
Income taxes payable 18,492 -
Deferred income tax liability 6,152 5,660
Public liability and property damage 41,267 58,783
Debt and other obligations 1,876,000 1,555,609
------------ ------------
Total liabilities 2,142,505 1,792,526
------------ ------------
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
24,172,603 and 24,158,429, respectively 242 242
Additional capital 710,805 709,040
Accumulated deficit (257,427) (329,464)
Foreign currency translation adjustment (975) (691)
------------ ------------
Total stockholders' equity 452,645 379,127
------------ ------------
$ 2,595,150 $ 2,171,653
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
-----------------------------------------------------------------------------------------------
(In Thousands)
Nine Months
Ended September 30,
------------------------------
(Unaudited)
2000 1999
----------- -----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 368,530 $ 284,196
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Revenue-earning vehicles:
Purchases (2,101,457) (1,934,533)
Proceeds from sales 1,405,501 1,223,327
Restricted cash and investments, net 50,062 (9,010)
Property and equipment:
Purchases (14,893) (11,292)
Proceeds from sale 232 990
Acquisition of businesses, net of cash acquired (9,762) -
----------- -----------
Net cash used in investing activities (670,317) (730,518)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt and other obligations:
Proceeds 2,498,191 3,357,620
Payments (2,177,980) (2,869,018)
Issuance of common shares 204 322
Vehicle financing issue costs (1,842) (3,221)
----------- -----------
Net cash provided by financing activities 318,573 485,703
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS 16,786 39,381
CASH AND CASH EQUIVALENTS:
Beginning of period 77,500 49,505
----------- -----------
End of period $ 94,286 $ 88,886
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
OPERATING AND INVESTING ACTIVITIES:
Direct financing leases of vehicles to franchisees $ 20,272 $ 13,109
=========== ===========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
--------------------------------------------------------------------------------
(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, Inc. is the parent
company to Thrifty Rent-A-Car System, Inc. which is the parent company to
Thrifty Canada Ltd. ("TCL") (individually and collectively referred to as
"Thrifty").
The accounting policies set forth in Note 2 to the consolidated financial
statements contained in the Form 10-K filed with the Securities Exchange
Commission on March 22, 2000 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.
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,
--------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Depreciation of revenue-earning vehicles, net $ 90,291 $ 85,198 $236,016 $229,770
Rents paid for vehicles leased 9,870 2,876 21,814 6,839
--------- --------- --------- ---------
$100,161 $ 88,074 $257,830 $236,609
========= ========= ========= =========
7
<PAGE>
</TABLE>
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 dilutive potential common shares outstanding which
include, where appropriate, the assumed exercise of options. In computing
diluted earnings per share, the Company has utilized the treasury stock
method.
The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings per share ("EPS") is
shown below:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (in thousands) $ 35,964 $ 30,210 $ 72,037 $ 52,595
=========== =========== =========== ===========
Basic EPS:
Weighted average common shares 24,168,156 24,145,008 24,163,932 24,132,940
=========== =========== =========== ===========
Basic EPS $ 1.49 $ 1.25 $ 2.98 $ 2.18
=========== =========== =========== ===========
Diluted EPS:
Weighted average common shares 24,168,156 24,145,008 24,163,932 24,132,940
Shares contingently issuable:
Stock options 229,173 261,202 190,908 199,121
Performance awards 201,270 130,817 201,270 132,080
Director compensation shares deferred 19,709 12,860 17,327 11,045
----------- ----------- ----------- -----------
Shares applicable to diluted 24,618,308 24,549,887 24,573,437 24,475,186
----------- ----------- ----------- -----------
Diluted EPS $ 1.46 $ 1.23 $ 2.93 $ 2.15
=========== =========== =========== ===========
</TABLE>
At September 30, 2000, options to purchase 2,230,928 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.
8
<PAGE>
4. DEBT AND OTHER OBLIGATIONS
Debt and other obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
Vehicle Debt and Other Financing:
<S> <C> <C>
Asset backed notes, net of discount $ 1,241,820 $ 1,343,311
Commercial paper, net of discount 446,657 80,376
Other vehicle debt 104,731 86,452
Limited partner interest in limited partnership 82,792 45,361
------------ ------------
Total vehicle debt and other financing 1,876,000 1,555,500
Other Notes Payable - 109
------------ ------------
Total debt and other obligations $ 1,876,000 $ 1,555,609
============ ============
</TABLE>
On March 2, 2000, the Commercial Paper Program was renewed for a 364-day
period at a maximum size of $780 million, backed by a renewal of the
Liquidity Facility totaling $700 million.
On August 3, 2000, the Company completed a five-year extension of the $215
million Senior Secured Revolving Credit Facility. The new five-year term
expires August 2, 2005. The Company had no working capital borrowings
outstanding under this facility as of September 30, 2000.
5. COMPREHENSIVE INCOME
Comprehensive income is comprised of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 35,964 $ 30,210 $ 72,037 $ 52,595
Foreign currency translation adjustment (101) 62 (284) 292
--------- --------- --------- ---------
Comprehensive income $ 35,863 $ 30,272 $ 71,753 $ 52,887
========= ========= ========= =========
</TABLE>
9
<PAGE>
6. 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 are summarized below (in
thousands):
For the Three Months
Ended September 30, 2000 Dollar Thrifty Other Total
--------------------------- ---------- ---------- --------- -----------
Revenues $ 245,635 $ 77,084 $ 191 $ 322,910
Income before income taxes $ 45,989 $ 15,003 $ 73 $ 61,065
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 Nine Months
Ended September 30, 2000 Dollar Thrifty Other Total
--------------------------- ---------- ---------- --------- -----------
Revenues $ 643,272 $ 200,296 $ 488 $ 844,056
Income before income taxes $ 95,641 $ 29,863 $ (18) $ 125,486
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
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.
*******
10
<PAGE>
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 the percentage of total revenues in the
Group's consolidated statement of income:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
(Percentage of Revenue)
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Vehicle rentals 75.7% 72.5% 74.9% 71.5%
Vehicle leasing 18.2% 21.2% 18.6% 22.1%
Fees and services 5.3% 5.6% 5.6% 5.6%
Other 0.8% 0.7% 0.9% 0.8%
--------- --------- --------- ---------
Total revenues 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- ---------
Costs and expenses:
Direct vehicle and operating 26.6% 27.3% 28.4% 29.0%
Vehicle depreciation and lease charges, net 31.0% 29.4% 30.5% 30.7%
Selling, general and administrative 13.9% 16.3% 16.8% 18.3%
Interest expense, net of interest income 9.1% 9.2% 8.9% 9.3%
Amortization of cost in excess of net
assets acquired 0.5% 0.4% 0.5% 0.6%
--------- --------- --------- ---------
Total costs and expenses 81.1% 82.6% 85.1% 87.9%
--------- --------- --------- ---------
Income before income taxes 18.9% 17.4% 14.9% 12.1%
Income tax expense 7.8% 7.3% 6.4% 5.3%
--------- --------- --------- ---------
Net income 11.1% 10.1% 8.5% 6.8%
========= ========= ========= =========
</TABLE>
11
<PAGE>
The Company's major sources of revenue are as follows (in thousands):
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Vehicle rental revenue:
Dollar $ 230,321 $ 205,940 $ 603,124 $ 525,011
Thrifty 14,019 11,262 29,225 26,142
---------- ---------- ---------- ----------
$ 244,340 $ 217,202 $ 632,349 $ 551,153
========== ========== ========== ==========
Vehicle leasing revenue:
Dollar $ 7,898 $ 8,856 $ 20,053 $ 22,557
Thrifty 50,871 54,641 136,748 147,872
---------- ---------- ---------- ----------
$ 58,769 $ 63,497 $ 156,801 $ 170,429
========== ========== ========== ==========
The following table sets forth certain selected operating data of the Group for
the U.S. and Canada Company-Owned Stores:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ------------ ------------
Vehicle Rental Data:
<S> <C> <C> <C> <C>
Average number of vehicles operated 77,018 68,651 67,403 60,451
Number of rental days 6,040,110 5,412,377 15,701,720 14,146,307
Average revenue per day $ 40.47 $ 40.13 $ 40.28 $ 38.97
Monthly average revenue per vehicle $ 1,058 $ 1,055 $ 1,042 $ 1,013
Vehicle Leasing Data:
Average number of vehicles leased 41,339 44,435 37,274 40,006
Monthly average revenue per vehicle $ 474 $ 476 $ 467 $ 473
</TABLE>
12
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES
Total revenues for the quarter ended September 30, 2000 increased $23.6
million, or 7.9%, to $322.9 million compared to the third quarter of 1999. The
growth in total revenues was due to an increase in vehicle rental revenue of
12.5% partially offset by a decline in vehicle leasing revenue of 7.4% compared
to the third quarter of 1999.
The Group's vehicle rental revenue for the third quarter of 2000 was
$244.3 million, a $27.1 million increase (a $24.4 million increase for Dollar
and a $2.7 million increase at Thrifty) from the third quarter of 1999. The
growth in vehicle rental revenue at Dollar was the result of an increase of
11.0% in rental days combined with a 0.7% increase in revenue per day. On
September 1, 2000, Dollar acquired the franchised operations of its Atlanta and
Memphis licensees. The vehicle rental revenue growth at Dollar that related to
the acquisition of franchise operations in 2000 was $4.9 million. The growth in
rental revenue at Thrifty was primarily due to a 15.8% growth in Canadian
operations. In September 2000, Thrifty commenced operating its South Florida
franchise, which was previously operated by an independent franchisee.
Vehicle leasing revenue for the third quarter of 2000 was $58.8
million, a $4.7 million decrease from the third quarter of 1999. This decline
was due primarily to a modification of the lease program at Thrifty that
eliminated certain incentives previously made available to franchisees with a
corresponding reduction in the lease rate. While changes made by Thrifty
resulted in a reduction of vehicle leasing revenue, they had no impact on
operating income. In addition, Thrifty made some vehicles available under direct
financing leases as opposed to operating leases.
EXPENSES
Total expenses increased 5.9% from $247.3 million in the third quarter
of 1999 to $261.8 million in the third quarter of 2000. The increase was
primarily comprised of a $16.5 million, or 9.0% increase at Dollar and a $1.9
million, or 3.0% decrease at Thrifty. Total expenses as a percentage of revenue
declined to 81.1% in 2000 from 82.6% in 1999.
Direct vehicle and operating expenses for the third quarter of 2000
increased $4.3 million, or 5.2%, over the 1999 third quarter, comprised of a
$6.1 million increase at Dollar and a $1.8 million decrease at Thrifty. The
overall increase at Dollar was due to higher airport concession rents, personnel
and vehicle operating costs partially offset by a $5.1 million favorable
adjustment to insurance reserves. This favorable adjustment was due to improved
claims experience in the settlement of existing claims as reflected in an
independent actuary's reserve estimate. As a result, Dollar reduced the reserve
liability. The decrease at Thrifty was due to the change in the lease program
structure discussed above.
Net vehicle depreciation expense and lease charges increased $12.1
million, or 13.7%, in the third quarter of 2000 as compared to the third quarter
of 1999, consisting of a $10.4 million increase at Dollar and a $1.7 million
increase at Thrifty. Vehicle depreciation expense increased $3.8 million, or
4.0%, due to a 5.0% increase in the average depreciation rate (4.4% increase at
Dollar and a 5.5% increase at Thrifty) partially offset by a 1.0% decrease in
depreciable fleet (2.5% increase at Dollar and 6.6% decrease at Thrifty). Net
vehicle gains on the disposal of non-program vehicles were $8.9 million for the
third quarter of 2000 and $9.7 million for the third quarter of 1999. Lease
charges, for vehicles leased from third parties, increased $7.5 million due to
an increase in the number of leased vehicles in the third quarter of 2000.
Selling, general and administrative expenses of $44.9 million for the
third quarter of 2000 decreased 7.7% from $48.7 million in the third quarter of
1999, primarily comprised of a $2.1 million decrease at Dollar and a $1.8
million decrease at Thrifty. This decrease was due primarily to a decrease in
sales and marketing costs and personnel related costs during the quarter ended
September 30, 2000.
13
<PAGE>
Net interest expense increased $1.9 million, or 6.9% to $29.4 million
in the third quarter of 2000 primarily due to higher average vehicle debt levels
and interest rates.
The effective income tax rate for the third quarter of 2000 was 41.1%
down from 41.9% for the third quarter of 1999. The decrease in the effective
rate was due primarily to the change in the relationship between permanent
differences and Canadian operations to income before income taxes. The effective
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.
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 $9.0 million, or 17.4% to $61.1
million for the third quarter of 2000. This growth was due to a $7.3 million
increase at Dollar and a $1.7 million increase at Thrifty.
NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES
Total revenues for the nine months ended September 30, 2000 increased
$73.8 million, or 9.6%, to $844.1 million compared to the nine months ended
September 30, 1999. The growth in total revenues was due to an increase in
vehicle rental revenue of 14.7% and an increase of 10.1% in fees and services
revenue partially offset by a decline in vehicle leasing revenue of 8.0%
compared to the nine months ended September 30, 1999.
The Group's vehicle rental revenue for the nine months ended September
30, 2000 was $632.3 million, a $81.2 million increase (a $78.1 million increase
for Dollar and a $3.1 million increase at Thrifty) over the nine months ended
September 30, 1999. The growth in vehicle rental revenue at Dollar was the
result of a 11.1% increase in rental days combined with a 3.5% increase in
revenue per day. The rental revenue growth at Dollar that related to the
acquisition of franchise operations was $9.1 million.
Vehicle leasing revenue for the nine months ended September 30, 2000
was $156.8 million, a $13.6 million decrease as compared to the nine months
ended September 30, 1999. This decline was due primarily to a modification of
the lease program at Thrifty that eliminated certain incentives previously made
available to franchisees with a corresponding reduction in the lease rate. While
changes made by Thrifty resulted in a reduction of vehicle leasing revenue, they
had no impact on operating income. In addition, Thrifty made some vehicles
available under direct financing leases as opposed to operating leases.
Fees and services revenue increased 10.1% to $47.2 million as compared
to the third quarter of 1999 primarily due to the growth in franchisee rental
revenue.
EXPENSES
Total expenses increased 6.1% from $677.1 million for the nine months
ended September 30, 1999 to $718.6 million for the nine months ended September
30, 2000. This increase was primarily comprised of a $49.3 million, or 9.9%
increase at Dollar and a $7.9 million, or 4.4% decrease at Thrifty. Total
expenses as a percentage of revenue declined to 85.1% in 2000 from 87.9% in
1999.
Direct vehicle and operating expenses for the nine months ended
September 30, 2000 increased $16.8 million, or 7.5%, compared to the nine months
ended September 30, 1999, comprised of a $22.5 million increase at Dollar and a
$5.7 million decrease at Thrifty. The overall increase at Dollar was due to
higher airport concession rents, personnel and other vehicle operating costs
partially offset by a $5.1 million favorable adjustment to insurance reserves
recorded in the third quarter of 2000. This favorable adjustment was due to
improved claims experience in the settlement of existing claims as reflected in
an independent actuary's reserve estimate. As a result, Dollar reduced the
reserve liability. The decrease at Thrifty was due to the change in the lease
rate structure discussed above.
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Net vehicle depreciation expense and lease charges increased $21.2
million or 9.0% for the nine months ended September 30, 2000 as compared to the
nine months ended September 30, 1999, consisting of a $22.1 million increase at
Dollar and a $0.9 million decrease at Thrifty. Vehicle depreciation expense
increased $8.9 million, or 3.5%, due to a 3.8% increase in the average
depreciation rate (3.8% increase at Dollar and a 3.2% increase at Thrifty)
partially offset by a 0.3% decrease in depreciable fleet. Net vehicle gains on
disposal of non-program vehicles were $24.6 million and $21.9 million for the
nine months ended September 30, 2000 and 1999, respectively. Lease charges, for
vehicles leased from third parties, increased $15.0 million due to more vehicles
leased in the nine months ended September 30, 2000.
Selling, general and administrative expenses of $141.6 million for the
nine months ended September 30, 2000 increased 0.5% from $140.8 million in 1999,
primarily comprised of a $1.6 million increase at Dollar and a $1.2 million
decrease at Thrifty. This increase was due primarily to higher personnel costs
partially offset by lower sales and marketing costs in the nine months ended
September 30, 2000.
Net interest expense increased $2.7 million, or 3.7% to $74.7 million
for the nine months ended September 30, 2000 primarily due to higher average
vehicle debt levels and interest rates partially offset by an increase in the
interest earned on invested restricted cash and other interest income.
The effective income tax rate for the nine months ended September 30,
2000 was 42.6% down from 43.5% for the nine months ended September 30, 1999. The
decrease in the effective tax rate was due primarily to the change in the
relationship between permanent differences and Canadian operations to income
before income taxes. The effective 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.
OPERATING RESULTS
The Group had income before income taxes of $125.5 million for the nine
months ended September 30, 2000 as compared to $93.1 million for the nine months
ended September 30, 1999, a 34.7% increase. This growth was due to a $28.2
million increase at Dollar and a $4.2 million increase at Thrifty.
SEASONALITY
The Group's business is subject to seasonal variations in customer
demand, with the summer vacation period representing the peak season for vehicle
rental. 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 Group. 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
The Group's primary cash requirements are for the acquisition of
revenue-earning vehicles and to fund its U.S. and Canadian operations. For the
nine months ended September 30, 2000, cash provided by operating activities was
$368.5 million.
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Cash used in investing activities was $670.3 million. The principal use
of cash in investing activities was the purchase of revenue-earning vehicles,
which totaled $2.1 billion ($1.3 billion at Dollar and $800 million at Thrifty)
which was partially offset by $1.4 billion ($900 million at Dollar and $500
million at Thrifty) in proceeds from the sale of used revenue-earning vehicles.
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 to
meet seasonal rental demand. The Group expects to continue to fund its
revenue-earning vehicles with cash provided from operations and increased
secured vehicle financing. Restricted cash and investments decreased $50.1
million for the nine months ended September 30, 2000. Restricted cash and
investments are restricted for the acquisition of revenue-earning vehicles and
other specified uses under the asset backed notes discussed below. The Group
also used cash for the purchase of non-vehicle capital expenditures of $15.4
million. These expenditures consist primarily of airport facility improvements
for the Group's rental locations and investments in information technology
equipment and systems. Dollar also acquired the franchised operations of its
largest Texas licensee on March 13, 2000, which used $2.7 million of cash, net
of assets acquired and liabilities assumed and the franchised operations of its
Atlanta and Memphis licensees on September 1, 2000, which used $7.1 million of
cash, net of assets acquired and liabilities assumed. These expenditures were
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, 2000, the insurance companies had issued approximately $70.9
million in bonds to secure these obligations.
ASSET BACKED NOTES
The asset backed note program at September 30, 2000 was comprised of
$1.24 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 $1.20 billion 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 $74.3
million at September 30, 2000.
COMMERCIAL PAPER PROGRAM AND LIQUIDITY FACILITY
The Company has a commercial paper program of up to $780 million and a
364 day, $700 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, 2000, the Group had $446.7 million in commercial paper
outstanding under its commercial paper program. The commercial paper program and
the liquidity facility are renewable annually.
OTHER VEHICLE DEBT
At September 30, 2000, other vehicle debt included borrowings of $96.9
million under revolving lines of credit with a vehicle manufacturer finance
subsidiary that bear interest at rates based on commercial paper rates. On
October 11, 2000, this facility was renewed for an additional one year term and
increased to $115 million. Also on September 1, 2000, the Company entered into a
$20 million revolving line of credit with a bank that bears interest at rates
based on commercial paper rates. As of September 30, 2000, no amounts were
outstanding under this line of credit. The above mentioned lines of credit are
collateralized by the vehicles financed under the facilities.
LIMITED PARTNER INTEREST IN LIMITED PARTNERSHIP
In February 1999, the TCL Funding Limited Partnership ("Partnership")
was created with TCL as the General Partner and an unrelated bank's conduit as
the Limited Partner. The Limited Partner's interest is reflected in Note 4 of
the Notes to Consolidated Financial Statements as Limited Partner Interest in
Limited Partnership.
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The Partnership agreement has a five-year term with the purpose to
purchase, own, lease and rent vehicles throughout Canada. The Limited Partner
has committed to funding approximately CDN$150 million to the Partnership which
they fund through the issuance and sale of notes in the Canadian commercial
paper market.
Due to the nature of the relationship between TCL and the Partnership,
the consolidated statements include the accounts of the Partnership. The Limited
Partner's income share was $2.6 million for the nine months ended September 30,
2000 as compared to $1.1 for the nine months ended September 30, 1999, which is
included in the Consolidated Statement of Income as interest expense.
At September 30, 2000, TCL has $4.3 million outstanding under a
revolving line of credit, which is reflected in Note 4 of the Notes to
Consolidated Financial Statements as other vehicle debt. The line of credit
supports TCL's investment in the Partnership.
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 $38.7 million and no working capital borrowings
at September 30, 2000. On August 3, 2000, the Company completed a five-year
extension of the Revolving Credit Facility. The new five-year term expires
August 2, 2005.
DAIMLERCHRYSLER CREDIT SUPPORT
DaimlerChrysler Corporation ("DaimlerChrysler") provides credit support
for the Group's vehicle fleet financing in the form of a letter of credit
facility. The letter of credit amount declines annually over five years, which
began September 30, 1999, by the greater of $5.7 million or 50% of the Group's
excess cash flow, as defined. The credit support amount was approximately $17.1
million at September 30, 2000. The Company may 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.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("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. In June 2000, SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," was issued which amended portions
of SFAS No. 133. The Company plans to adopt SFAS No. 133, as amended, beginning
January 1, 2001. The Company believes that the adoption of SFAS No. 133 will
have no impact on its consolidated results of operations and financial position.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. In June 2000,
the SEC issued SAB 101B, "Second Amendment: Revenue Recognition in Financial
Statements." SAB 101B delays the implementation date of SAB 101 to the fourth
quarter of 2000. The Company will adopt SAB 101 pursuant to SAB 101B as required
in the fourth quarter of 2000. The adoption of SAB 101 will have no impact on
its consolidated results of operations and financial position.
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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.
At September 30, 2000, there were no significant changes in the Group's
quantitative disclosures about market risk compared to December 31, 1999, which
is included under Item 7A of the Company's most recent Form 10-K.
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.
ITEM 5. OTHER INFORMATION
-----------------
On June 26, 2000, the Company entered into a new five-year vehicle
supply agreement with DaimlerChrysler effective July 1, 2001. DaimlerChrysler
has agreed to make specified volumes of DaimlerChrysler vehicles available to
the Company through July 2006.
On September 28, 2000, the Company approved the granting of 675,000
stock options to approximately 206 employees, including each of the executive
officers at an exercise price of $19.375 per share. These options vest in three
equal annual installments, which begin September 30, 2001, and expire on
September 27, 2010. Under certain circumstances, including a change of control
of the Company, the options would be exercisable immediately.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
[a] INDEX OF EXHIBITS
-----------------
Exhibit 4.28 Supplement No. 5 to Series 1998-1 Supplement to Base
Indenture dated July 17, 2000, among Rental Car
Finance Corp., Dollar, Thrifty, the Company, Bankers
Trust Company and Credit Suisse First Boston.
Exhibit 4.29 Amended and Restated Credit Agreement dated as of
August 3, 2000, among the Company, Dollar, Thrifty,
Various Financial Institutions named therein, Credit
Suisse First Boston, The Chase Manhattan Bank and
Chase Securities Inc.
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Exhibit 4.30 Amendment Agreement dated as of August 3, 2000,
among the Company, Dollar, Thrifty, Various
Financial Institutions named therein, Credit Suisse
First Boston, The Chase Manhattan Bank and Chase
Securities Inc.
Exhibit 4.31 Supplement No. 6 to Series 1998-1 Supplement to Base
Indenture dated August 31, 2000, among Rental Car
Finance Corp., Dollar, Thrifty, the Company, Bankers
Trust Company and Credit Suisse First Boston.
Exhibit 10.22 Adoption, Consent and Third Amendment to Retirement
Plan dated as of July 1, 2000.
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 September 30, 2000.
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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 13, 2000.
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
By: /s/ JOSEPH E. CAPPY
-------------------------------------------------
Name: Joseph E. Cappy
Title: Chairman of the Board, President, Chief
Executive Officer and Principal Executive Officer
By: /s/ STEVEN B. HILDEBRAND
-------------------------------------------------
Name: Steven B. Hildebrand
Title: Executive Vice President, Chief Financial
Officer, Principal Accounting Officer and
Principal Financial Officer
20
