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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ________________
Commission file number 1-13647
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DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 73-1356520
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5330 East 31st Street, Tulsa, Oklahoma 74135
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (918) 660-7700
Securities registered pursuant to Section
12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: [ ]
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant as of February 29, 2000 was
$272,179,543.
The number of shares outstanding of the registrant's Common Stock as of
February 29, 2000 was 24,160,598.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 25, 2000 are incorporated by reference in Part
III.
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2
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
FORM 10-K
CONTENTS
PART I
ITEM 1. BUSINESS................................................. 4
ITEM 2. PROPERTIES............................................... 22
ITEM 3. LEGAL PROCEEDINGS........................................ 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...... 22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.......................... 23
ITEM 6. SELECTED FINANCIAL DATA.................................. 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................... 26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK........................................ 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............. 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE................... 63
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....... 63
ITEM 11. EXECUTIVE COMPENSATION................................... 63
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.................................... 63
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........... 63
3
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K....................................... 64
SIGNATURES.................................................................. 70
INDEX TO EXHIBITS........................................................... 71
FACTORS AFFECTING FORWARD LOOKING STATEMENTS
Some of the statements contained herein under "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" may constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Although Dollar Thrifty
Automotive Group, Inc. believes such forward-looking statements are based on
reasonable assumptions, such statements are not guarantees of future performance
and certain factors could cause results to differ materially from current
expectations. These factors include: economic and competitive conditions in
markets and countries where our customers reside and where our companies and
their franchisees operate; changes in capital availability or cost; costs and
other terms related to the acquisition and disposition of automobiles and
certain regulatory and environmental matters. 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.
4
PART I
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ITEM 1. BUSINESS
Company Overview
Dollar Thrifty Automotive Group, Inc., a Delaware corporation (the
"Company"), owns two vehicle rental companies, Dollar Rent A Car Systems, Inc.
("Dollar"), and Thrifty Rent-A-Car System, Inc. Thrifty Rent-A-Car System, Inc.
is an indirect subsidiary of the Company as it is a wholly owned subsidiary of
Thrifty, Inc. (Thrifty, Inc., Thrifty Rent-A-Car System, Inc. and all their
respective subsidiaries are individually or collectively, as the context
requires, referred to hereafter as "Thrifty"). Dollar and Thrifty and their
respective independent franchisees operate the Dollar and Thrifty vehicle rental
systems as separate businesses. The Dollar and Thrifty brands represent a
value-priced rental vehicle generally appealing to leisure customers and
tourists, including foreign tourists, and to small businesses and independent
business travelers. As of December 31, 1999, Dollar and Thrifty had 973
locations in the United States and Canada of which 149 were company-owned stores
and 824 were locations operated by franchisees. While Dollar and Thrifty have
franchisees in countries outside the United States and Canada, revenues from
these franchisees have not been material to results of operations of the Company
and its consolidated subsidiaries (collectively, the "Group"). Dollar's gross
revenues comprise approximately 74% of the Group's revenues with Thrifty
contributing the remaining 26% of revenues.
The businesses of Dollar and Thrifty complement each other, although
they have separate and different approaches to the vehicle rental market. In the
United States, Dollar's main focus is operating company-owned stores located at
major airports, and it derives substantial revenues from tour and leisure
rentals. Thrifty operates almost exclusively through franchisees serving both
the airport and local markets. Dollar derives a majority of its U.S. revenues
from providing rental vehicles and services directly to rental customers, while
Thrifty derives its revenues primarily from franchising fees and services
including vehicle leasing. Thrifty's U.S. franchisees provide vehicles and
services to the rental customer. Dollar incurs the costs of operating its
company-owned stores and its revenues are directly affected by changes in rental
demand. As Thrifty operates primarily through franchisees, it does not incur the
costs of operating the franchised locations and does not generally deal directly
with rental customers. Therefore, changes in levels of customer demand tend to
affect Thrifty's results less quickly than those of Dollar. See Note 15 of Notes
to Consolidated Financial Statements for business segment information.
The Company was incorporated on November 4, 1997. It is the successor
to Pentastar Transportation Group, Inc. which was formed in 1989 to acquire and
operate the rental car subsidiaries of Chrysler Corporation, now known as
DaimlerChrysler Corporation ("DaimlerChrysler"). Dollar was incorporated in 1965
and Thrifty was incorporated in 1950. Thrifty, Inc., which was formed in
December 1998, directly owns Thrifty Rent-A-Car System, Inc. and Thrifty Car
Sales, Inc. ("Thrifty Car Sales"), which operates a franchised retail used car
sales network.
On December 23, 1997, the Company completed its initial public offering
of Common Stock (the "Offering") after registration with the Securities and
Exchange Commission ("SEC") on Form S-1. Upon closing of the Offering,
22,500,000 shares of Common Stock were sold at an initial price to the public of
$20.50 per share. In addition, the underwriters exercised an over allotment
option and acquired an additional 1,125,000 shares for the same price, less the
applicable underwriter's discount. Of the shares sold in the Offering,
20,000,000 shares were sold by DaimlerChrysler, which prior to the Offering was
the parent of the Company, and 3,625,000 shares were sold by the Company. On
January 15, 1998, the underwriters exercised a second and final portion of their
over allotment option, purchasing an additional 498,105 shares of Common Stock.
5
In connection with the Offering, the Company completed new financing
arrangements. On December 23, 1997, the Company closed a $900 million asset
backed medium term note program, together with a Revolving Credit Facility
(hereinafter defined). In addition, on March 4, 1998, the Company established a
Commercial Paper Program (hereinafter defined) backed by a Liquidity Facility
(hereinafter defined). Proceeds of the medium term notes and commercial paper
are used to finance vehicles used by Dollar and Thrifty for their operations.
The Revolving Credit Facility was established to provide letters of credit for
financing and operational needs and to meet the Group's borrowing needs for its
other business operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
Industry Overview
The U.S. daily vehicle rental industry has two principal markets: the
airport market and the local market. Vehicle rental companies that focus on the
airport market rent primarily to business and leisure travelers. Vehicle rentals
from airport locations account for the largest portion of vehicle rentals in the
United States. Companies focusing on the local market rent primarily to persons
who need a vehicle periodically for personal or business use or who require a
temporary replacement vehicle. Rental companies also sell used vehicles and
ancillary products such as refueling services and loss damage waivers.
Vehicle rental companies typically incur substantial debt to finance
the ongoing turnover of their rental fleets. They also typically acquire a
majority of their fleets under manufacturer residual value programs that
repurchase or guarantee the resale value of Program Vehicles (hereinafter
defined) at particular times in the future. This allows a rental company to
predict this important element of its cost structure. The Program Vehicles and
the related obligations of the manufacturers are used as collateral for fleet
financing.
Most of the major domestic vehicle rental car companies were formerly
owned by domestic automotive manufacturers. The industry has seen significant
changes in the last few years. Cendant Corporation purchased Avis Rent A Car,
Inc. and subsequently sold 70% of Avis to the public. AutoNation, Inc. (formerly
Republic Industries, Inc.), acquired National Car Rental System, Inc. and Alamo
Rent-a-Car, Inc., and Team Rental Group Inc. (renamed Budget Group, Inc.)
acquired Budget Rent a Car Corporation from Ford Motor Company ("Ford"). Ford
sold a minority interest in The Hertz Corporation to the public. Accordingly,
most of the major companies in the industry are now publicly held, including the
Company. The Company believes these changes have led to increased industry focus
on profitability and shareholder returns.
Seasonality
The Company's business is subject to seasonal variations in customer
demand, with the summer vacation period representing the peak season for vehicle
rentals. This general seasonal variation in demand, along with more localized
changes in demand, caused the Group to vary its fleet size over the course of
the year. In 1999, the Group's average monthly fleet size ranged from a low of
approximately 77,000 vehicles in the first quarter to a high of approximately
118,000 vehicles in the third quarter.
Dollar
General
Dollar's main focus is serving the airport vehicle rental market, which
is composed of business and leisure travelers. The majority of its locations are
on or near airport facilities. Dollar operates primarily through company-owned
stores in the United States, and also licenses to independent franchisees to
operate as a part of the Dollar system in the United States and abroad. All of
its Canadian and international operations are franchised.
6
Dollar's services and products include fleet leasing, marketing,
centralized reservations, counter automation, insurance, central billing,
supplies and training and operational support. Dollar's company-owned stores and
franchisees rent vehicles on a daily, weekend, weekly and monthly basis, at
varying rates depending on cost and other competitive factors in each location's
market. In addition to vehicle rentals, Dollar and its franchisees sell
ancillary products and rent supplemental equipment. To meet seasonal and other
demand changes, Dollar shifts vehicles among its company-owned stores and U.S.
franchisees. Revenues from Dollar's franchisees outside the United States and
Canada have not been material to its results of operations.
As of December 31, 1999, Dollar's vehicle rental system included 289
locations in the United States and Canada, consisting of 116 company-owned
stores and 173 that were operated by franchisees. Dollar's total revenue was
$735 million in 1999, of which $685 million (93%) was generated by company-owned
stores and $50 million (7%) was revenue from Dollar franchisees for vehicle
leasing fees and other service and product fees and other revenue.
Dollar operates primarily through company-owned stores, and through
franchisees in key U.S. leisure destinations and in other U.S. locations. Dollar
has company-owned stores in 39 of the 50 largest U.S. airport markets and
franchisees in the remaining 11 markets. When opportunities arise, Dollar may
acquire operations from franchisees and convert them to company-owned stores.
Dollar converted two franchised operations to company-owned operations in 1995,
four in 1996, three in 1997 and two in 1998. On March 13, 2000, Dollar acquired
the franchised operations of its largest Texas licensee, which includes
operations in San Antonio, Corpus Christi, Midland/Odessa, and other smaller
markets. Dollar generally has rights of first refusal on the sale of a
franchised operation.
Dollar sold its company-owned store in Colorado Springs in October
1998, including a license to operate Aspen, Grand Junction and Gunnison,
Colorado. This transaction was consistent with Dollar's strategy to license
markets of this size in order to grow the Dollar system.
Company-Owned Stores
Dollar believes that having company-owned stores in most of the top 50
airport markets and other key markets enhances its ability to manage its vehicle
rental system and fleet. Dollar can implement marketing and pricing strategies
to focus on discretionary leisure and business travelers, reduce costs through
bulk purchasing, apply performance benchmarks and develop and implement best
practice management techniques nationwide. Its company-owned store network also
allows Dollar to offer customers one-way rentals in certain markets.
Vehicle rentals by customers of foreign and U.S. tour operators
generated approximately 30% of Dollar's rental revenues in 1999. These rentals
are usually part of tour packages that also include air travel and hotel
accommodations. Rentals to tour customers have certain advantages. Tour
customers tend to reserve vehicles earlier than other customers, rent them for
longer periods and cancel reservations less frequently. Dollar has significant
relationships with foreign and domestic tour operators that resulted in rental
revenue of $206 million in 1999.
Dollar is the exclusive U.S. vehicle rental company for three of its
five largest tour operator accounts. Its arrangement with the other tour
operator accounts are non-exclusive. The agreements for these five accounts
expire from December 31, 2001 to December 31, 2009. No single tour operator
account generated in excess of 5% of the Group's 1999 revenues.
As of December 31, 1999, Dollar had vehicle rental concessions for
company-owned stores at 59 airports in the United States. Its payments for these
concessions are usually based upon a specified percentage of airport-generated
revenue, subject to a minimum annual fee, and sometimes include fixed rent for
terminal counters or other leased properties and facilities.
7
Services and Products Provided to Rental Customers
Worldwide Reservation System. Dollar has continuously staffed
reservation facilities at its headquarters in Tulsa, Oklahoma and at its
facility in Tahlequah, Oklahoma. Dollar's reservation facilities, as well as the
major U.S. airline global distribution systems, are linked to Dollar's worldwide
reservation computer and telecommunications system, which is also located in
Tulsa, Oklahoma. Dollar's reservation facilities collectively processed 8.1
million reservation telephone calls during 1999. Approximately 40% of Dollar's
1999 non-tour vehicle rentals were booked by travel agents through airline
distribution systems. Dollar has preferred supplier agreements with many major
travel agency chains and travel consortia. Reservations to Dollar's Internet web
site, (www.dollar.com), increased 182% in 1999 to approximately 246,000 booked
reservations.
Supplemental Equipment and Optional Products. Dollar rents ski racks,
mobile telephones, baby seats and other supplemental equipment and, subject to
availability and applicable local law, makes available loss damage waivers and
insurance products related to the vehicle rental.
Instant Return. Dollar offers customers instant return service at most
of its U.S. airport company-owned stores. When a customer returns a vehicle at
one of these locations, a representative meets the customer and provides a
receipt from a hand-held computer terminal.
Information Systems
Dollar depends upon a number of core information systems to operate its
business, primarily its counter automation and revenue management systems. The
counter automation system in Dollar's company-owned stores facilitates the sale
of additional products and services and allows Dollar to monitor its fleet and
financial assets. Dollar introduced its new rental counter automation system,
FASTLANE(R), for company-owned stores in the continental United States (except
Florida) in 1998 and Hawaii in 1999. In 1998, Dollar developed a revenue
management system with Talus, a leading supplier of such systems, which is
utilized in all of Dollar's company-owned stores. The system is designed to
enable Dollar to better determine rental demand based on historical reservation
patterns and adjust its rental rates accordingly.
Dollar has entered into an agreement with The SABRE Group, Inc.
("SABRE"), a leader in electronic distribution systems for the travel industry,
to manage and monitor its data center network and its daily information
processing. All of Dollar's key systems are housed in a secure underground SABRE
facility in Oklahoma designed to withstand disasters.
Dollar's core information systems were updated to address the Year 2000
issues as discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Year 2000."
Customer Service and Employee Training
Dollar has programs at its headquarters and in company-owned stores to
improve customer service. Customer First!, Dollar's quality improvement program,
involves establishing a team at each vehicle rental location that is accountable
for customer satisfaction. Dollar's customer service center measures customer
satisfaction, tracks service quality trends, handles customer complaints and
provides recommendations to Dollar's senior management and vehicle rental
location supervisors. Dollar conducts initial and ongoing training for
company-owned store and franchisee employees through education centers in San
Francisco, Tulsa, Newark, Denver, Los Angeles and Cleveland.
8
Orlando Operations
Central Florida, with its many tourist attractions, is the most
important leisure destination for Dollar. Dollar's company-owned store at
Orlando International Airport has a mix of tour and retail business. Dollar also
operates a facility at the Orlando Sanford International Airport, 25 miles north
of Orlando, which mainly serves charter flights by foreign tour operators. This
facility, which was specifically designed to handle tour customers, has 42
rental stations and parking for approximately 1,600 vehicles.
Franchising
United States and Canada
Approximately 7% of Dollar's 1999 revenues in the United States and
Canada consisted of leasing revenue and fees from its franchisees and other
revenues. Dollar sells its U.S. franchises on an exclusive basis for specific
geographic areas. Most franchisees are located at or near airports that generate
a lower volume of vehicle rentals than the airports served by Dollar's
company-owned stores. Dollar also makes a fleet leasing program available to its
U.S. franchisees, which in 1999 accounted for approximately 4% of Dollar's total
revenue. As of December 31, 1999, Dollar had franchised operations located in 26
countries. In Canada, Dollar's master franchisee directly operates or
subfranchises 34 airport and suburban locations. See "Fleet Acquisition and
Management -- Fleet Leasing Programs."
Dollar licenses its franchisees to use Dollar's service marks in the
vehicle rental and leasing, parking and used car sales businesses. Franchisees
pay Dollar an initial franchise fee generally based on the population, number of
airline passengers, total airport vehicle rental revenues and the level of any
other vehicle rental activity in the franchised territory, as well as other
factors.
System Fees. In addition to an initial franchise fee, in 1999 each U.S.
franchisee was generally required to pay Dollar a system fee on their rental car
revenue equal to 8% of gross rental revenue on a monthly basis for airport
operations (7% in 1998 and 6% in 1997) and 6% for suburban operations.
Franchisee Services and Products. Dollar makes insurance coverage
available to its franchisees and provides them with training and operational
assistance, site selection guidance, vehicle damage recovery and claims
management advice, sales assistance and image and standards guidance. Dollar
also provides them with fleet planning and customer satisfaction programs and
sells them certain Dollar-branded supplies. In addition, Dollar offers its
franchisees rental rate management analysis, corporate account and tour billing
and travel agent commission payments. Dollar franchisees are connected to, and
pay Dollar a fee for, each reservation made through Dollar's worldwide
reservation system.
International
Master franchisees, direct franchisees and subfranchisees operate
Dollar's vehicle rental locations outside the United States. Master franchisees
are authorized to use Dollar's service marks and business methods in territories
in which they operate directly or through subfranchisees, and are responsible
for promoting the Dollar brand name and its services and products and for
developing and supporting their direct operations and subfranchisees. Dollar's
revenues from international franchise operations were less than 1% of 1999 total
revenue.
Effective February 29, 2000, Dollar terminated its reservation transfer
agreement with Europcar International, S.A., a European-based vehicle rental
company ("Europcar") and thereafter began exchanging reservations with Sixt, AG,
a major European rental car company, which operates over 1,500 rental outlets
principally in Europe and North Africa.
9
The number of foreign locations or Dollar system-wide locations
disclosed in this report do not include the Europcar or Sixt locations.
Marketing
National Advertising and Promotion
Dollar's primary marketing objective is to convey to cost conscious
leisure and business travelers that Dollar is committed to providing
lower-priced vehicle rentals than its competitors. Dollar also emphasizes its
operations in Florida, California, Hawaii, Nevada and Arizona, which are popular
leisure destinations. Dollar's national advertising programs build on these
themes through weekly advertisements in U.S. newspaper travel sections and
advertisements in USA Today. Dollar also advertises on U.S. broadcast and cable
television networks, promoting its low rates and on-airport convenience. Dollar
spends approximately 5% of its annual total U.S. system-wide revenues on
marketing, advertising, public relations and sales promotions. Dollar has
national marketing partnerships with major U.S. airlines' frequent flier
programs in order to attract customers who value frequent flier awards as well
as low vehicle rental rates.
Dollar encourages franchisees, as well as local management of
company-owned stores, to develop local market relationships and retail sales
initiatives that coordinate with Dollar's national advertising programs. Dollar
makes available print and broadcast advertising materials to franchisees for use
in local markets, and pays a promotional allowance for qualifying advertising
expenditures to the franchisees that participate in Dollar's fleet program.
Dollar has made filings under the intellectual property laws of
jurisdictions in which it or its franchisees operate, including the U.S. Patent
and Trademark Office, to protect the names, logos and designs identified with
Dollar. These marks are important for customer awareness and selection of Dollar
for vehicle rental.
Strategic Marketing Efforts
Travel agencies book approximately 40% of Dollar's non-tour vehicle
rentals through the major U.S. airline global distribution systems. Major travel
agency chains and consortia operate under preferred supplier agreements with
Dollar and are supported by Dollar's sales department. Under its preferred
supplier arrangements, Dollar provides these travel agency groups additional
commissions or lower prices in return for their featuring Dollar in their
advertising or giving Dollar a priority in their reservation systems. In
general, these arrangements are not exclusive to Dollar, and many travel agency
groups have similar arrangements with other vehicle rental companies.
During 1999, Dollar received approximately 14% of its reservations
through its www.dollar.com web site and other internet travel sites. Dollar will
continue to invest in its www.dollar.com web site and plans to roll out
additional improvements in early 2000. In January 2000, Gomez Advisors, a
recognized resource in providing consumer and business-based e-commerce research
tools and analysis, rated dollar.com as the No. 1 car rental site on the Gomez
Advisors Winter 1999-2000 Internet Car Rentals Scorecard.
In January 2000, Dollar launched the first full-service travel web site
sponsored by a car rental company. DollarTravel.com is powered by TRIP.com,
which offers consumers online access to more than 500 airlines, 40,000 hotels
and 45 car rental companies.
10
Summary Operating Data of Dollar
Years Ended December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(in thousands)
Revenues:
U.S. Company-owned stores $ 682,769 $ 605,187 $ 559,610
U.S. and Canada franchisees 47,848 50,011 51,256
International franchisees 2,547 3,100 3,427
Other 1,847 1,824 1,989
---------- ---------- ----------
Total revenues $ 735,011 $ 660,122 $ 616,282
========== ========== ==========
As of December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
Rental Locations:
U.S. Company-owned stores 116 114 103
U.S. and Canada franchisee locations 173 154 152
Franchisees:
U.S. and Canada 77 73 70
International 40 50 49
11
Thrifty
General
Thrifty's main focus is on franchising and franchise support services.
Thrifty also operates company-owned stores in six cities in the United States
and Canada. Thrifty's U.S. company-owned stores and its franchisees derive
approximately 60% of their combined rental revenues from the airport market and
approximately 40% from the local market. Thrifty's approach of serving both the
airport and local markets within each territory allows many of its franchisees
and company-owned stores to have multiple locations to improve fleet utilization
and profit margins by moving vehicles among locations to better address
differences in demand between their markets. As airports have begun to institute
fees for vehicle rental companies located outside their properties, or limited
these companies' access to airport travelers, Thrifty franchisees have begun
moving to on-airport locations.
As of December 31, 1999, Thrifty's vehicle rental system included 684
rental locations in the United States and Canada, divided between 651 franchisee
locations and 33 company-owned stores. The Thrifty system also included 610
locations abroad, all of which were franchisee locations. Thrifty's total
corporate revenue was $263 million in 1999, of which $229 million (87%) was
revenue from franchisees in the form of fleet leasing fees and other service and
product fees and $34 million (13%) of which was generated by company-owned
stores. Revenues from Thrifty's franchisees outside the United States and Canada
have not been material to its results of operations.
Franchising
United States
Thrifty's U.S. franchisees are the core of its operations and are
essential to its long-term profitability and growth. Thrifty offers its
franchisees a full line of services and products not easily or cost-effectively
available from other sources. Thrifty actively promotes franchisee financial
stability and growth and seeks opportunities to enhance its vehicle rental
system by improving its services to franchisees, particularly its fleet leasing
programs, and by developing new franchisee revenue opportunities, such as
airport parking and truck rental. Thrifty also works closely with its U.S.
franchisees in formulating and implementing marketing and operating strategies.
Thrifty licenses its U.S. franchisees to use its service marks and
participate in its various services and systems. Franchisees pay Thrifty an
initial franchise fee based on such factors as the population, the number of
airline passengers, and total airport vehicle rental revenues and the level of
any other vehicle rental activity in the franchised territory. Franchises are
sold on an exclusive basis for a specific geographical territory, usually a city
or metropolitan area. Over the past five years, Thrifty's franchisee turnover
has averaged approximately 9% per year, with an average of 16 terminations and
24 new sales (including new territories added to existing franchise agreements)
per year.
Initial Franchise Fees, System Fees and Advertising Fees. Thrifty's
initial franchise fees are negotiated on a case-by-case basis, and may be
structured to promote expansion of an existing franchisee's operations into a
contiguous area. In addition to the initial franchise fee, its U.S. franchisees
pay Thrifty an administrative fee, which is generally 3% of base rental revenue,
excluding ancillary products.
U.S. franchisees also pay an advertising fee ranging from 2.5% to 5% of
base rental revenue to a separate advertising fund managed jointly by
franchisees and Thrifty management. Thrifty has implemented, and may implement
in the future, special short-term reductions in system and advertising fees to
encourage growth.
12
For 1999, Thrifty's five largest U.S. franchisees generated
approximately 19% of Thrifty's total corporate revenue in the form of system,
fleet leasing, reservation and other fees.
Marketing to Prospective Franchisees. Thrifty has developed programs to
attract additional franchisees in the vehicle rental industry. Programs include
attracting independent vehicle rental companies with phased-in fees and
competitive fleet leasing terms, assisting individuals experienced in vehicle
rental operations to operate their own franchises through financial assistance,
start-up fleet supply and other support. Thrifty also encourages existing
franchisees to acquire and expand into neighboring territories by offering fleet
incentives, reduced administrative and advertising fees and lower initial
franchise fees for additional territories.
Fleet Leasing Program. Thrifty has a fleet leasing program for
franchisees that it believes provides them with a competitive and flexible
source of fleet vehicles. In 1999, fleet leasing accounted for approximately 72%
of Thrifty's total revenue.
See "Fleet Acquisition and Management-- Fleet Leasing Programs."
Training and Support. Thrifty's franchisees receive required initial
orientation and ongoing training in areas such as customer service and hiring.
In early 1997, Thrifty began implementing its "True Blue Pride Initiative" to
identify areas requiring customer service improvements and to implement new
standards to deliver faster and friendlier service. This initiative emphasizes
the role that franchisee customer service employees should have in identifying
and resolving customer complaints. New programs that have been developed as part
of the initiative include Thrifty's frequent renter program, Blue Chip, which
provides for preprinted rental contracts and expedited service.
Thrifty also publishes a comprehensive operating manual for franchisees
and provides operational support in areas such as cost control, fleet planning,
revenue management and local advertising and marketing. Thrifty also assists
franchisees on real estate matters, including site selection and airport
facility issues.
Worldwide Reservation Center and Other Information Systems. Thrifty's
franchisees benefit from Thrifty's continuously staffed worldwide reservation
centers at its headquarters in Tulsa, Oklahoma and its reservation facility in
Okmulgee, Oklahoma, which in 1999, collectively processed approximately 4.3
million telephone calls. Thrifty's reservation facilities are linked to all of
the major U.S. airline reservation systems and through them to travel agencies
in the United States, Canada and abroad. These centers are a key means of
marketing the Thrifty system to consumers and travel agents and informing them
about the system's vehicle rental rates, products, promotions and services.
Thrifty franchisee payments for reservations made through these centers
accounted for approximately 4% of Thrifty's 1999 total revenues. Reservations
through Thrifty's Internet web site (www.thrifty.com) increased in 1999 by 206%
to approximately 73,000 booked reservations.
U.S. franchisees receiving a certain volume of reservations are
required to use an approved automated counter system, usually leasing or
subleasing the related hardware and software from Thrifty or a third-party
leasing agent. In addition to providing an electronic data link with Thrifty's
worldwide reservation centers, the automated counter system prints rental
agreements and provides Thrifty and its franchisees with customer and vehicle
inventory information and financial and operating reports.
Thrifty supports its information systems through a combination of
internal resources and external technology providers. Thrifty has engaged SABRE
to manage and monitor its data center network and its daily information
processing. Reservation applications systems continue to be serviced by Perot
Systems Corporation under a five-year agreement through 2002. Other information
systems are supported by Thrifty employees. All of Thrifty's key systems are
housed in a secure underground SABRE facility in Oklahoma designed to withstand
disasters.
13
Thrifty's core information systems were updated to address the Year
2000 issues, as discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Year 2000."
Insurance, Supplies and National Account Programs. Thrifty makes
available to its franchisees for a fee insurance for death or injury to third
parties, property damage and damage to or theft of franchisee vehicles.
Thrifty makes bulk purchases of items used by its franchisees, which it
sells to franchisees at prices that are often lower than they could obtain on
their own. Thrifty also negotiates national account programs to allow its
franchisees to take advantage of volume discounts for many materials or services
used for operations such as tires, glass replacement, long distance telephone
service and overnight mail.
Parking Services. Airport parking operations are a natural complement
to vehicle rental operations. Thrifty encourages its franchisees that have
near-airport locations to add this ancillary business. Thrifty assists its
franchisees in obtaining additional property and in planning and implementing
parking operations. Franchisees benefit since the Thrifty service marks are
already on the premises, shuttle buses are already being operated for rental
customers and parking operations increase service levels and recognition at the
airports. Franchisees with parking operations may also offer ancillary services
such as car washes and oil changes to create additional opportunities to service
the vehicle while the traveler is away. Thrifty receives a royalty fee generally
equal to 3% of the total revenue generated from these services.
Services and Products Provided to Rental Customers. Thrifty's
franchisees provide their customers with products and services substantially
similar to those provided to customers by Dollar's company-owned stores.
International (Except Canada)
As of December 31, 1999, Thrifty master franchisees operated 610
vehicle rental locations in 63 countries and territories outside the United
States and Canada. Regions with Thrifty franchisees include Latin America,
Europe, the Middle East and the Asia-Pacific region. Thrifty seeks to attract
international franchisees by emphasizing Thrifty's uniform image, brand
marketing efforts, worldwide reservation system and consistent vehicle rental
system practices and procedures. Thrifty's corporate revenues from international
franchisees were less than 2% of 1999 total revenues.
Thrifty grants master franchises on a countrywide basis. Each master
franchisee is permitted to use directly and subfranchise others to use Thrifty's
service marks, systems and technologies within its country or territory.
Company-Owned Stores
Thrifty typically establishes company-owned stores only upon the
financial failure of a franchisee. Thrifty uses company-owned stores to preserve
its presence in key markets. As opportunities arise, these locations are
refranchised. During 1999, Thrifty reduced the number of cities in which it
operates company-owned stores to one in the United States by selling a company
store to a franchisee. Thrifty intends to continue to operate its company-owned
store in Tulsa, Oklahoma. The services and products Thrifty provides to
company-owned stores and those provided by company-owned stores to vehicle
rental customers are substantially similar to those provided to and by Thrifty's
U.S. franchisees.
Thrifty Car Sales
Thrifty Car Sales, Inc., was formed in December 1998, to franchise
retail used car dealerships under the Thrifty Car Sales brand name. Thrifty Car
Sales provides an opportunity for both independent and manufacturer franchised
dealers to enhance or expand their used car operations under a well-recognized
national brand name. In addition to the use of the brand name dealers will have
access to a variety of products and services offered by Thrifty Car Sales. These
products and services include operational and marketing support, vehicle supply
services, customized retail and wholesale financing programs as well as national
accounts and supplies programs.
14
At December 31, 1999, Thrifty Car Sales had signed dealer agreements
for 15 U.S. cities including a corporate operation in Tulsa, Oklahoma.
Canadian Operations
Thrifty operates in Canada through its wholly owned subsidiary, Thrifty
Canada, Ltd. ("TCL"). TCL operates company-owned stores in the five largest
airport vehicle rental markets in Canada and encourages franchisees to operate
in the remaining markets. As of December 31, 1999, the TCL system included 130
vehicle rental locations, of which 101 were operated by franchisees and 29 were
operated as company-owned stores.
Company-Owned Stores
TCL's company-owned store operations include five strategic airports:
Toronto, Montreal, Vancouver, Winnipeg and Calgary. These operations are
important to maintaining a national airport presence in Canada, where TCL has
significant airport concession and lease commitments. Historically, TCL's
operating results have been adversely affected by losses incurred by
company-owned stores.
Franchising
TCL provides services and products to its franchisees that are
substantially similar to those Thrifty provides to its U.S. franchisees,
including fleet leasing, insurance services, advertising and marketing support
and supplies. Due to the structure of the Canadian vehicle rental market, which
has a greater proportion of vehicle rental activity from on-airport locations
than off-airport locations as compared to the United States, Thrifty has sought
to strengthen its airport presence in Canada by encouraging existing and
prospective franchisees to locate on-airport. Canadian franchisees pay TCL a
combined monthly administrative and advertising fee fixed in most cases at 8% of
rental revenues.
Marketing
Thrifty's marketing strategy is to position the Thrifty system as an
industry leader in delivering value for cost-conscious consumers. In the United
States it implements this strategy primarily through national advertising and
promotion assistance to U.S. franchisees in local advertising, promotion and
sales and strategic marketing partnerships.
Advertising, Promotion and Sales
Thrifty employs national advertising on U.S. broadcast and cable
television networks and in newspapers and travel industry and airline magazines.
Thrifty also sponsors sports and other events to increase national exposure and
promote local Thrifty operations. In the United States, Thrifty's national
advertising and marketing expenses are paid out of an advertising fund managed
by a national advertising committee consisting of representatives of Thrifty
franchisees and certain members of Thrifty management. U.S. franchisees and
company-owned stores contribute 5% of their base rental revenue from airport
operations and 2.5% of their base rental revenue from local operations to the
advertising fund.
U.S. franchisees and company-owned stores are also required to spend an
additional 3% of their base rental revenue on local advertising and promotion.
Thrifty has a local sales department that assists franchisees in developing
their local markets. Thrifty also provides an allowance for qualifying local
advertising, promotion and sales expenditures to U.S. franchisees that
participate in Thrifty's fleet leasing program. In the 1999 model year,
franchisees and company-owned stores earned an aggregate allowance of
approximately $5.5 million.
15
Thrifty has made filings under the intellectual property laws of
jurisdictions in which it or its licensees operate, including the U.S. Patent
and Trademark Office, to protect the names, logos and designs identified with
Thrifty. These marks are important for customer awareness and selection of
Thrifty for vehicle rental.
Strategic Marketing Efforts
Thrifty's approach of targeting value-conscious consumers includes
strategic marketing partnerships, such as those it has with Montgomery Wards in
the United States, Canadian Tire in Canada and Ryder Truck Rental throughout
North America. Thrifty also has frequency-based marketing relationships with
numerous airlines and hotel chains. Since a significant portion of Thrifty's
system-wide rentals result from travel agency reservations, Thrifty maintains
its relationships with travel agency chains and consortia through preferred
supplier agreements, travel agent advertising and other efforts. Under its
preferred supplier arrangements, Thrifty provides these travel agency groups
additional commissions or lower prices in return for their featuring Thrifty in
their advertising or giving Thrifty a priority in their reservation systems. In
general, these arrangements are not exclusive to Thrifty, and many travel agency
groups have similar arrangements with other vehicle rental companies.
Summary Operating Data of Thrifty
Years ended December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(in thousands)
Revenues:
U.S. and Canada franchisees $ 225,934 $ 200,505 $ 159,636
U.S. and Canada company-owned stores 33,981 34,526 63,946
International franchisees 3,063 2,888 2,761
---------- ---------- ----------
Total revenues $ 262,978 $ 237,919 $ 226,343
========== ========== ==========
As of December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
Rental Locations:
U.S. and Canada franchisee locations 651 609 600
U.S. and Canada company-owned stores 33 25 36
Franchisees:
U.S. and Canada 245 232 231
International 63 67 63
16
Fleet Acquisition and Management
U.S. Vehicle Supply
For the 1999 model year, DaimlerChrysler vehicles represented
approximately 87% of the Group's total U.S. fleet. The Group also purchases or
leases vehicles of other automotive manufacturers, permitting it to adjust the
composition and overall cost of its fleet. The Company expects that for the 2000
model year, DaimlerChrysler vehicles will represent over 85% of the Group's U.S.
fleet.
Automotive manufacturers' residual value programs limit the Group's
residual value risk. Under these programs, the manufacturer either guarantees
the aggregate depreciated value upon resale of covered vehicles of a given model
year, as is generally the case under DaimlerChrysler's program, or agrees to
repurchase vehicles at specified prices during established repurchase periods.
In either case, the manufacturer's obligation is subject to certain conditions
relating to the vehicle's age, physical condition and mileage. Vehicles
purchased by vehicle rental companies under these programs are referred to
herein as "Program Vehicles." Vehicles not purchased under these programs and
for which rental companies therefore bear residual value risk are referred to
herein as "Non-Program Vehicles." The Company believes that a majority of
vehicles owned by other U.S. vehicle rental companies are Program Vehicles.
The Group's primary supplier, DaimlerChrysler, sets the terms of its
residual value program before the start of each model year. The terms include
monthly depreciation rates, minimum and maximum holding periods and mileage,
model mix requirements and vehicle condition and other return requirements. The
residual value program enables the Group to limit its residual value risk with
respect to Program Vehicles because DaimlerChrysler agrees to reimburse Dollar
and Thrifty for any difference between the aggregate gross auction sale price of
the Program Vehicles for the particular model year and the vehicles' aggregate
predetermined residual value. Under the program, Dollar and Thrifty must sell
the Program Vehicles in closed auctions to DaimlerChrysler dealers. Dollar and
Thrifty are reimbursed under the program for certain transportation and
auction-related costs.
The Group also purchases Non-Program Vehicles, when required by
manufacturers in connection with the purchase of Program Vehicles, or if it
believes there is an opportunity to lower its fleet costs or to fill model and
class niches not available through residual value programs. DaimlerChrysler,
which is the main provider of Non-Program Vehicles to the Group, does not set
any terms or conditions on the resale of Non-Program Vehicles other than
required minimum holding periods. For the 1999 model year, approximately 20% of
the vehicles acquired by the Group were Non-Program Vehicles.
The Group's operating results are materially affected by the
depreciation rates and other purchase terms provided under DaimlerChrysler's
residual value program, as well as by other purchase incentives DaimlerChrysler
provides. The percentage of vehicles acquired under DaimlerChrysler's and other
manufacturers' residual value programs in the future will depend upon a number
of factors, including the availability and cost of these programs. Residual
value programs enable Dollar and Thrifty to determine their depreciation expense
on Program Vehicles in advance. Vehicle depreciation is the largest single cost
element in the Group's operations. The percentage of the Group's vehicle rental
fleets benefiting from residual value programs could decrease if the automotive
manufacturers changed the size or terms of these programs. In that event, the
Group would have increased residual value risk that could be material to its
results of operations and could adversely affect its ability to finance its
vehicles. Second, because it is difficult to predict future vehicle resale
values, the Group may not be able to manage effectively the residual value risk
on its Non-Program Vehicles. As recently as 1997, results for the Group were
adversely affected by lower than anticipated residual values. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Year
Ended December 31, 1998 Compared With Year Ended December 31, 1997." The
residual value of Non-Program Vehicles depends on such factors as the general
level of pricing in the automotive industry for both new and used vehicles.
Prices for used vehicles generally decrease if the automotive manufacturers
increase the retail sales incentives they offer on new vehicles. The Company
cannot predict the level of retail sales incentives DaimlerChrysler or the other
automotive manufacturers will offer in the future. The Group has received
substantial payments under residual value programs over the past several years.
See Note 5 of Notes to Consolidated Financial Statements.
17
DaimlerChrysler has been the Group's principal supplier of vehicles. In
1996, DaimlerChrysler began operating under five-year vehicle supply
arrangements that were formalized in 1996 and 1997 in separate U.S. vehicle
supply agreements ("VSAs") with Dollar and Thrifty. DaimlerChrysler has agreed
to make specified volumes of DaimlerChrysler vehicles available to Dollar and
Thrifty through July 2001. Negotiations are underway to extend the VSAs. Dollar
and Thrifty may purchase vehicles for use by company-owned stores or for their
fleet leasing programs. Dollar and Thrifty have agreed to promote
DaimlerChrysler vehicles exclusively in their advertising and other promotional
materials. DaimlerChrysler has agreed to make various promotional payments to
Dollar and Thrifty, some of which vary based on the volume of vehicles
purchased. These payments are material to the Group's results of operations. See
Note 5 of Notes to Consolidated Financial Statements.
The VSAs provide that Dollar and Thrifty will each purchase at least
80% of their respective vehicles from DaimlerChrysler until a certain minimum
level is reached. Also, certain minimum numbers of vehicles must be Program
Vehicles. While DaimlerChrysler has the sole discretion to set the specific
terms and conditions of its residual value program for a model year, it has
agreed in the VSAs to offer programs to Dollar and Thrifty that, taken as a
whole, are competitive with a residual value program Ford or General Motors
makes generally available to domestic vehicle rental companies.
If purchases of DaimlerChrysler vehicles by Dollar or Thrifty during
any model year exceed certain targets, DaimlerChrysler will make available to
Dollar or Thrifty additional Program Vehicles up to a maximum of 15% of the
target number of DaimlerChrysler Program Vehicles.
Vehicle Disposition
Dollar and Thrifty generally hold vehicles in rental service from six
months to 18 months. The length of service is determined by taking into account
seasonal rental demand and the average monthly mileage accumulation. Most
vehicles must be removed from service before they reach 30,000 miles to avoid
significant penalties under DaimlerChrysler's residual value program. As of
December 31, 1999, the average age of vehicles in the Group's fleet was
approximately five months. The Group's flexibility to adjust the holding period
for vehicles, particularly for Program Vehicles, enables the Group to adjust its
fleet size up or down relatively quickly in response to changing market
conditions. Dollar or Thrifty must bear the risk on the resale of Program
Vehicles that cannot be returned
Dollar and Thrifty dispose of Non-Program Vehicles through auctions and
directly to used car dealers, wholesalers, retail and franchisees. During 1999,
Dollar and Thrifty disposed of 72% of their Non-Program Vehicles through direct
channels and 28% through auctions compared to 53% direct and 47% to auctions
during 1998. The Company believes that utilizing sales channels other than
auctions avoids transportation costs, interest costs and auction fees and may
provide higher net residual amounts from disposal.
Maintenance
Dollar and certain Dollar and Thrifty franchisees may have automotive
maintenance centers at airports and in urban and suburban areas. Many of these
facilities are accepted by automotive manufacturers as eligible to perform and
receive reimbursement for warranty work. Collision damage and major repairs are
generally performed by independent contractors. Dollar and Thrifty franchisees
are responsible for the maintenance of their fleet vehicles.
18
Fleet Leasing Programs
Dollar and Thrifty make fleet leasing programs available to their U.S.
franchisees for each new model year. The terms of their fleet leasing programs
generally mirror the requirements of various manufacturers' residual value
programs with respect to model mix, order and delivery, vehicle maintenance and
returns, but also include Non-Program Vehicles. Dollar and Thrifty monitor the
creditworthiness and operating performance of franchisees participating in their
fleet leasing programs and periodically audit franchisees' leased fleets. Dollar
and Thrifty design their fleet leasing programs to offer their franchisees an
attractive means of obtaining fleet vehicles. For 1999, approximately 35% and
70% of the vehicles in the fleets of Dollar's and Thrifty's respective U.S.
franchisees had been provided through their fleet leasing programs. In 1999,
approximately 4% of Dollar's and 72% of Thrifty's (including Canada) total
revenue was derived from vehicle leasing programs. During 1999, a limited number
of larger franchisees acquired their vehicles directly from manufacturers.
The Group sets their lease rates after considering Program Vehicle
depreciation rates, estimated Non-Program Vehicle depreciation, interest costs,
model mix and administrative costs. Average monthly lease rates vary depending
on vehicle model, and the average lease period is between eight and ten months.
Although Dollar and Thrifty lease Non-Program Vehicles as well as Program
Vehicles to their franchisees, their fleet leasing programs eliminate the
residual value risk for their franchisees. Thrifty franchisees may, however,
elect to assume some residual value risk on certain Non-Program Vehicles they
lease in exchange for a lower lease rate.
U.S. Fleet Data
Years Ended December 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Thrifty:
Average number of vehicles leased to franchisees 31,856 29,595 23,878
---------- ---------- ----------
Average number of vehicles in combined fleets of
franchisees 45,613 39,434 31,854
Average number of vehicles in combined fleets of
company-owned stores 483 865 3,470
---------- ---------- ----------
Total 46,096 40,299 35,324
========== ========== ==========
Dollar:
Average number of vehicles leased to franchisees 4,960 6,151 6,735
---------- ---------- ----------
Average number of vehicles in combined fleets of
franchisees 14,252 13,513 13,523
Average number of vehicles in combined fleets of
company-owned stores 56,065 50,673 47,813
---------- ---------- ----------
Total 70,317 64,186 61,336
========== ========== ==========
19
Competition
There is intense competition in the vehicle rental industry on the
basis of price, service levels, vehicle quality, vehicle availability and
convenience and condition of rental locations. Dollar and Thrifty's principal
competitors have larger market shares and rental volumes, greater financial
resources and more sophisticated information systems. Dollar operates mainly in
the U.S. airport market, although compared to its competitors it relies more
heavily on discretionary leisure, tour and business customers. Dollar's
franchisees have a similar customer profile. In any given location, Dollar may
compete with national, regional and local vehicle rental companies, many of
which have greater financial resources than the Group. Dollar's principal
competitors for discretionary business and leisure travelers are Alamo, Avis,
Budget, Hertz, National and Thrifty. Dollar competes primarily on the basis of
price and customer service.
Thrifty's U.S. franchisees generally compete for cost-conscious
consumers with Alamo, Avis, Budget, Dollar, Hertz and National. Enterprise,
Hertz, Avis and CarTemps USA (a division of AutoNation) as well as local and
regional rental companies are major competitors in the local market. They
compete on the basis of price, location, service and well-established customer
relationships. Most Thrifty franchisees compete in the local market for retail
general use business rather than insurance replacement rentals. Thrifty's
company-owned store has a similar customer profile.
The Canadian vehicle rental markets are also intensely competitive. The
vast majority of the Canadian market is operated either directly or through
franchisees of the major U.S. vehicle rental companies, including Budget, Avis,
Hertz and National, as well as Dollar and Thrifty.
Insurance
The Group is subject to third-party bodily injury liability and
property damage liability claims resulting from accidents involving their rental
customers. The Group carries first dollar coverage for third-party bodily injury
and property damage liability claims arising from the use of a vehicle in the
United States. Dollar obtained first dollar coverage during the first quarter of
1999 and Thrifty obtained first dollar coverage during the second quarter of
1999. Prior to the above coverage levels, the Group retained the risk of loss in
various amounts up to $2 million on a per occurrence basis. The Group maintains
additional insurance at certain amounts in excess of its respective underlying
coverages.
The Group retains the risk of loss for general and garage liability
insurance coverage up to $1 million and maintains insurance at certain amounts
in excess of $1 million. They also maintain catastrophic and comprehensive
coverage for damage to vehicles owned by them up to $3 million per occurrence
with a deductible amount of $250,000. In addition, the Group carries workers'
compensation coverage with retentions up to $100,000. The Group also carries
excess liability and directors' and officers' liability insurance coverage.
Provisions for bodily injury liability and property damage liability on
self-insured claims are made by charges to expense based upon periodic
evaluations by an independent actuary of estimated ultimate liabilities on
reported and unreported claims. As of December 31, 1999, the Group's reserve for
public liability and property damage claims was approximately $58.8 million. The
Group's obligations to pay these losses and indemnify the insurance carriers are
collateralized by surety bonds. As of December 31, 1999, these surety bonds
totaled approximately $64.5 million.
The Group also maintains various surety bonds to secure performance
under airport concession agreements and other obligations. As of December 31,
1999, the total amount of these bonds was approximately $14.5 million.
20
Regulation
Loss Damage Waivers and Supplemental Liability Insurance
Loss damage waivers relieve customers from financial responsibility for
vehicle damage. Legislation affecting the sale of loss damage waivers has been
adopted in 25 states. These laws either require disclosure to customers that
loss damage waivers may not be necessary, limit customer liability to specified
amounts, limit the ability of vehicle rental companies to offer loss damage
waivers for sale or cap the amounts that may be charged for loss damage waivers.
Adoption of national or additional state legislation affecting or limiting the
sale, or capping the rates, of loss damage waivers could result in the loss of
this revenue and additional limitations on potential customer liability could
increase costs to Dollar, Thrifty and their franchisees.
Dollar, Thrifty and other vehicle rental companies offer customers
supplemental liability insurance ("SLI") in connection with vehicle rentals. In
1997, the State of Texas determined that car rental companies cannot sell SLI
without licensing and product approval. Some other states concluded that the
selling of SLI required an insurance license while other states were unclear on
the issue. During the fourth quarter of 1999, the Financial Services Reform Bill
was passed by Congress to address this issue. The effect of the legislation is
to create a federal presumption for a three-year period that car rental
companies are not required to have a state insurance license to sell certain
insurance products, unless state law specifically requires such a license. In
states where existing law does not require such insurance licensing, car rental
companies are working to enact legislation which either specifically exempts
them from licensing requirements or which grants them a limited license to sell
insurance products related to car rental, such as SLI.
Franchising Regulation
As franchisors, Dollar and Thrifty are subject to federal, state and
foreign laws regulating various aspects of franchise operations and sales. These
laws impose registration and disclosure requirements on franchisors in the offer
and sale of franchises and, in certain states, also apply substantive standards
to the relationship between the franchisor and the franchisee, including those
pertaining to default, termination and nonrenewal of franchises.
Other Matters
Certain states currently make vehicle owners (including vehicle rental
companies) vicariously liable for the actions of any person lawfully driving an
owned vehicle, regardless of fault. Some of these states, primarily New York, do
not limit this liability. Vehicle rental companies are also subject to various
federal, state and local consumer protection laws and regulations including
those relating to advertising and disclosure of charges to customers.
Dollar and Thrifty are subject to federal, state and local laws and
regulations relating to taxing and licensing of vehicles, franchise sales,
franchise relationships, vehicle liability, used vehicle sales, insurance,
telecommunications, vehicle rental transactions and labor matters. The Company
believes that Dollar and Thrifty practices and procedures are in substantial
compliance with federal, state and local laws and is not aware of any material
expenditures necessary to meet legal or regulatory requirements. Nevertheless,
considering the nature and scope of Dollar's and Thrifty's businesses, it is
possible that regulatory compliance problems could be encountered in the future.
21
Environmental Matters
The principal environmental regulatory requirements applicable to
Dollar and Thrifty operations relate to the ownership, storage or use of
petroleum products such as gasoline, diesel fuel and new and used motor oil; the
treatment or discharge of waste waters; the operation of automotive body shops;
and the generation, storage, transportation and off-site treatment or disposal
of waste materials. Dollar and Thrifty own 10 and lease 87 locations where
petroleum products are stored in underground or above-ground tanks. For owned
and leased properties, Dollar and Thrifty have programs designed to maintain
compliance with applicable technical and operational requirements, including
leak detection testing of underground storage tanks, and to provide financial
assurance for remediation of spills or releases.
The historical and current uses of the Dollar and Thrifty facilities
may have resulted in spills or releases of various hazardous materials or wastes
or petroleum products ("Hazardous Substances") that now, or in the future, could
require remediation. The Group also may be subject to requirements related to
remediation of Hazardous Substances that have been released into the environment
at properties they own or operate, or owned or operated in the past, or at
properties to which they send, or have sent, Hazardous Substances for treatment
or disposal. Such remediation requirements generally are imposed without regard
to fault, and liability for any required environmental remediation can be
substantial.
Dollar and Thrifty may be eligible for reimbursement or payment of
remediation costs associated with releases from registered underground storage
tanks in U.S. states that have established funds to assist in the payment of
such remediation costs. Subject to certain deductibles, the availability of
funds, the compliance status of the tanks and the nature of the release, these
tank funds may be available to Dollar and Thrifty for use in remediating
releases from their tank systems.
At certain facilities, Dollar and Thrifty presently are investigating
or remediating soil or groundwater contamination. Based on currently available
information, the Company does not believe that the costs associated with
environmental investigation or remediation will be material. However, additional
contamination could be identified or occur in the future.
The use of automobiles and other vehicles is subject to various
governmental requirements designed to limit environmental damage, including that
caused by emissions and noise. Generally, these requirements are met by the
manufacturer except, on occasion, equipment failure requiring repair by the
Group.
Environmental legislation and regulations and related administrative
policies have changed rapidly in recent years. There is a risk that governmental
environmental requirements, or enforcement thereof, may become more stringent in
the future and that the Group may be subject to legal proceedings brought by
government agencies or private parties with respect to environmental matters. In
addition, with respect to cleanup of contamination, additional locations at
which wastes generated by the Group may have been released or disposed, and of
which the Group is currently unaware, may in the future become the subject of
cleanup for which the Group may be liable, in whole or part. Accordingly, while
the Group believes that it is in substantial compliance with applicable
requirements of environmental laws, there can be no assurance that the Group's
future environmental liabilities will not be material to the Group's
consolidated financial position or results of operations or cash flows.
Employees
As of December 31, 1999, the Group employed a total of approximately
5,500 full-time and part-time employees of whom approximately 4,400 were
employed by Dollar and 1,100 by Thrifty. Approximately 240 of the Group's
employees were subject to collective bargaining agreements as of December 31,
1999. The Company believes the Group's relationship with its employees is good.
22
ITEM 2. PROPERTIES
The Company owns its headquarters located at 5330 East 31st Street,
Tulsa, Oklahoma. This location is a three building office complex that houses
the headquarters and reservation centers for Dollar and Thrifty. These buildings
and the related improvements were mortgaged in December 1997 pursuant to a
mortgage in favor of Credit Suisse First Boston ("CSFB"), as administrative
agent for a syndicate of banks. The mortgage was executed in connection with the
Revolving Credit Facility, as described in "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources".
Dollar and Thrifty each own or lease real property used for
company-owned stores and office facilities, and in some cases own real property
that is leased to franchisees or other third parties. As of December 31, 1999,
the Group's company-owned operations were carried on at 149 locations in the
U.S. and Canada, the majority of which are leased. Dollar and Thrifty each
operate company-owned stores under concession agreements with various
governmental authorities charged with the operation of airports. Concession
agreements for airport locations, which are sometimes competitively bid, are
important for securing air traveler business.
In connection with the Revolving Credit Facility, Dollar executed
mortgages in favor of CSFB encumbering its real property located in San Diego,
Tampa and Las Vegas. Thrifty also executed mortgages in favor of CSFB
encumbering its real property located in Phoenix, Ft. Lauderdale, Orlando,
Dallas, Houston, and Salt Lake City.
ITEM 3. LEGAL PROCEEDINGS
On November 2, 1994, the City of San Jose, California filed an action
in the Superior Court of California, against Chevron, Dollar and others, seeking
unspecified compensatory and punitive damages and injunctive relief. The City of
San Jose has not served process on Dollar. The suit relates to pollution at a
site currently occupied by Dollar and formerly occupied by Chevron. Dollar has
partially remediated the affected soil, but not the allegedly affected ground
water. Dollar believes that prior uses of the site resulted in any remaining
contamination at the site.
In addition to the foregoing, various legal actions, claims and
governmental inquiries and proceedings are pending or may be instituted or
asserted in the future against the Company and its subsidiaries. Litigation is
subject to many uncertainties, and the outcome of the individual litigated
matters is not predictable with assurance. It is possible that certain of the
actions, claims, inquiries or proceedings, including the one discussed above,
could be decided unfavorably to the Company or the subsidiaries involved.
Although the amount of liability with respect to these matters cannot be
ascertained, potential liability is not expected to materially affect the
consolidated financial position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter ended December 31, 1999.
23
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange
("NYSE") under the trading symbol "DTG." The high and low sales prices for the
Common Stock for each quarterly period during 1999 and 1998, were as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
1999
----
High $ 17.31 $ 23.94 $ 25.44 $ 24.06
Low $ 11.31 $ 16.56 $ 18.31 $ 16.88
1998
----
High $ 24.25 $ 24.44 $ 16.56 $ 14.63
Low $ 18.38 $ 12.00 $ 9.88 $ 8.69
The 24,160,598 shares of Common Stock outstanding at February 29, 2000
were held by 3,041 stockholders of record.
The Company intends to reinvest its earnings in its business and
therefore does not anticipate paying any cash dividends in the foreseeable
future. The Company has not paid cash dividends since completion of the
Offering.
Under the terms of the Revolving Credit Facility, restrictions were
imposed by the lender on the payment of cash dividends to stockholders. During
the five-year term of such agreement, dividends are permitted at the lesser of
specified monetary levels or percentages of cash flow.
24
ITEM 6. SELECTED FINANCIAL DATA
Selected Consolidated Financial Data of the Group
The selected consolidated statement of operations and balance sheet
data were derived from the audited consolidated financial statements of the
Group. References to system-wide vehicle rental revenue include revenue received
from the Group's company-owned stores and by franchisees from the rental of
vehicles.
Years Ended December 31, (b)
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
Statement of Operations
(in thousands):
Revenues:
Vehicle rental $ 714,407 $ 635,600 $ 620,045 $ 497,239 $ 372,508
Vehicle leasing 218,614 202,371 164,701 149,713 177,836
Fees and services 57,046 51,770 49,143 47,597 49,382
Other 8,685 9,225 9,899 9,342 9,653
---------- ---------- ---------- ---------- ----------
Total revenues 998,752 898,966 843,788 703,891 609,379
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Direct vehicle and operating 289,129 267,504 263,850 225,558 166,473
Vehicle depreciation and lease
charges, net 311,113 305,169 294,911 230,051 220,471
Selling, general and
administrative 190,994 163,256 149,697 140,089 123,439
Interest expense, net 95,114 88,726 87,852 72,868 78,817
Amortization of cost in excess
of net assets acquired 5,842 5,417 6,010 8,169 10,456
Intangible asset impairment losses - - - 157,758 -
---------- ---------- ---------- ---------- ----------
Total costs and expenses 892,192 830,072 802,320 834,493 599,656
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes 106,560 68,894 41,468 (130,602) 9,723
Income tax expense 46,974 31,229 23,427 16,682 9,753
---------- ---------- ---------- ---------- ----------
Net income (loss) (a) $ 59,586 $ 37,665 $ 18,041 $ (147,284) $ (30)
========== ========== ========== ========== ==========
Earnings (loss) per share (a):
Basic $ 2.47 $ 1.56 $ 0.90 $ (7.36) $ -
Diluted $ 2.43 $ 1.56 $ 0.90 $ (7.36) $ -
Balance Sheet Data:
(in thousands)
Revenue-earning vehicles, net $1,507,692 $1,342,066 $1,319,490 $1,120,346 $ 958,799
Total assets 2,171,653 1,865,300 1,942,210 1,647,951 1,657,823
Total debt 1,555,609 1,313,799 1,418,687 1,241,558 1,128,811
Stockholders' equity 379,127 315,914 268,426 183,883 331,189
25
U. S. and Canada
Years Ended December 31, (b)
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
System-wide Data:
Vehicle rental revenue:
(in thousands)
Company-owned stores $ 714,000 $ 636,000 $ 620,000 $ 497,000 $ 373,000
Franchisee locations 699,000 620,000 516,000 502,000 556,000
---------- ---------- ---------- ---------- ----------
Total vehicle rental revenue $1,413,000 $1,256,000 $1,136,000 $ 999,000 $ 929,000
========== ========== ========== ========== ==========
Rental locations:
Company-owned stores 149 139 139 156 162
Franchisee locations 824 763 752 729 720
---------- ---------- ---------- ---------- ----------
Total rental locations 973 902 891 885 882
========== ========== ========== ========== ==========
Average number of vehicles operated
during the period by company-owned
stores and franchisees 123,814 111,652 103,417 94,992 93,989
Peak number of vehicles operated
during the period by company-owned
stores and franchisees 148,832 134,407 122,286 110,771 108,447
Company-owned Stores Data:
Vehicle Rental Data:
Average number of vehicles operated 59,218 53,983 53,719 45,037 36,246
Number of rental transactions 3,621,111 3,320,294 3,300,420 2,817,269 2,196,611
Average revenue per transaction $ 197 $ 191 $ 187 $ 176 $ 170
Monthly average revenue per vehicle $ 1,005 $ 980 $ 959 $ 917 $ 856
Vehicle Leasing Data:
Average number of vehicles leased 38,690 37,709 32,814 30,583 34,373
Average monthly lease revenue per unit $ 471 $ 447 $ 420 $ 409 $ 400
- ----------
(a) Management believes it is important to note that net income (loss) and
earnings (loss) per share for the year ended December 31, 1996 include
intangible asset impairment losses of $157,758,000, related to
DaimlerChrysler's decision in 1996 to dispose of Thrifty as a non-core
asset ($155,000,000) and an impairment loss related to TCL
($2,758,000).
(b) Certain reclassifications have been made in the selected consolidated
financial data to conform to the classifications used in 1999.
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Group owns two separate vehicle rental companies, Dollar and
Thrifty. They engage in the business of renting vehicles directly to retail and
tour customers and providing vehicle leasing and other services to franchisees
that rent to customers. 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.
The Group's revenues consist of:
o Vehicle rentals -- revenue generated from renting vehicles to
customers, including all related charges, through company-owned
stores,
o Vehicle leasing -- revenue generated from leasing vehicles to
franchisees,
o Fees and services -- revenue generated from franchise fees and
providing reservations, insurance, supplies and other products and
services to franchisees, and
o Other -- revenue generated from franchise sales, parking income,
non-vehicle lease income and interest income derived from
franchisees.
The Group's expenses consist of:
o Direct vehicle and operating -- costs related to the rental of
revenue-earning vehicles to customers and to the leasing of
vehicles to franchisees, such as leasing expenses, concessions and
commissions paid to airport authorities, travel agencies and
others, insurance and lease promotion expenses, net of certain
incentives received from vehicle manufacturers,
o Vehicle depreciation and lease charges, net -- depreciation expense
relating to revenue-earning vehicles, net of gains and losses on
the disposal of such vehicles, and lease charges for vehicles
leased from third parties,
o Selling, general and administrative expenses, including advertising
and marketing expenses and reservation expenses,
o Interest expense, net -- interest expense, net of interest earned
on restricted cash, cash and cash equivalents, relating primarily
to revenue-earning vehicle financing, and
o Amortization of cost in excess of net assets acquired.
The Group's profitability is primarily a function of the volume and
pricing of rental transactions, utilization of the vehicles and the number of
vehicles leased to franchisees. Significant changes in the purchase or disposal
price of vehicles or interest rates can also have a significant effect on the
Group's profitability, depending on the ability of the Group to adjust the size
of the fleet as well as pricing and lease rates for these changes. The Group's
business requires significant expenditures for vehicles and consequently,
requires substantial liquidity to finance such expenditures.
The following discussion and analysis provides information that
management believes to be relevant to understanding the Company's consolidated
financial condition and results of operations. This discussion should be read in
conjunction with the Group's consolidated financial statements and the related
notes thereto included in this report.
27
Results of Operations
The following table sets forth the percentage of total revenues in the
Group's consolidated statement of income:
Years Ended December 31, (b)
-----------------------------
1999 1998 1997
------- ------- -------
Revenues:
Vehicle rentals 71.5% 70.7% 73.5%
Vehicle leasing 21.9% 22.5% 19.5%
Fees and services 5.7% 5.8% 5.8%
Other 0.9% 1.0% 1.2%
------- ------- -------
Total revenues 100.0% 100.0% 100.0%
------- ------- -------
Costs and expenses:
Direct and vehicle operating 28.9% 29.8% 31.3%
Vehicle depreciation and lease charges, net 31.2% 33.9% 35.0%
Selling, general and administrative 19.1% 18.1% 17.7%
Interest expense, net 9.5% 9.9% 10.4%
Amortization of cost in excess of net
assets acquired 0.6% 0.6% 0.7%
------- ------- -------
Total costs and expenses 89.3% 92.3% 95.1%
------- ------- -------
Income before income taxes 10.7% 7.7% 4.9%
Income tax expense 4.7% 3.5% 2.8%
------- ------- -------
Net income (a) 6.0% 4.2% 2.1%
======= ======= =======
- ----------------
(a) In 1997, the Group incurred a one-time tax charge of $4,314,000 related to
its separation from DaimlerChrysler.
(b) Certain reclassifications have been made in the 1998 and 1997 consolidated
financial statements to conform to the classifications used in 1999.
28
The following table sets forth a breakdown of the Group's two major sources of
revenue:
Years Ended December 31, (a)
--------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(in thousands)
Vehicle rental revenue:
Dollar $ 681,240 $ 603,331 $ 559,101
Thrifty 33,167 32,269 60,944
-------------- -------------- --------------
Total $ 714,407 $ 635,600 $ 620,045
============== ============== ==============
Leasing revenue:
Dollar $ 28,762 $ 33,224 $ 34,452
Thrifty 189,852 169,147 130,249
-------------- -------------- --------------
Total $ 218,614 $ 202,371 $ 164,701
============== ============== ==============
- ------------------
(a) Certain reclassifications have been made in the 1998 and 1997 consolidated
financial statements to conform to the classifications used in 1999.
Year Ended December 31, 1999 Compared with Year Ended December 31, 1998
Revenues
Total revenues for the year ended December 31, 1999 increased $99.8
million, or 11.1%, to $998.8 million compared to 1998. The increase in total
revenues was due to an increase in rental revenue of 12.4% over 1998 and a 8.0%
growth in leasing revenue. Fees and services revenue increased $5.3 million due
to higher franchise fees and other revenue fees from franchisees. Vehicle rental
revenue and vehicle leasing revenue were impacted by franchise acquisitions at
Dollar and re-franchising of company-owned stores at Thrifty.
The Group's vehicle rental revenue for 1999 was $714.4 million, a 12.4%
increase from 1998. This increase was due primarily to a $77.9 million increase
for Dollar and a $0.9 million increase at Thrifty. The growth in vehicle rental
revenue at Dollar was the result of an increase of 9.6% in transactions combined
with a 3.1% increase in revenue per transaction. The rental revenue growth at
Dollar related to the acquisition of franchisees was $15 million, which
represented 19.2% of Dollar's total rental revenue growth during 1999.
Vehicle leasing revenue for 1999 was $218.6 million, a $16.2 million
increase from 1998. This increase in vehicle leasing revenue reflects an
increase of $20.7 million, or 12.2%, in Thrifty's leasing revenue due to a 6.9%
increase in the average number of vehicles leased to franchisees along with a
4.9% increase in the vehicle leasing rates partially due to a change in vehicle
mix. Dollar's leasing revenue declined $4.5 million, or 13.4%, due to a decrease
in the average number of vehicles leased to franchisees as a result of the
acquisition of franchised locations during 1999 partially offset by an increase
in lease rates.
29
Expenses
Total expenses increased 7.5% from $830.1 million in 1998 to $892.2
million in 1999. This increase was due primarily to a $45.9 million, or 7.5%
increase for Dollar and a $16.3 million, or 7.5% increase at Thrifty. Total
expenses as a percentage of revenue declined to 89.3% in 1999 from 92.3% in
1998.
Direct vehicle and operating expenses for 1999 increased $21.6 million,
or 8.1%, over 1998, primarily due to an increase at Dollar. The overall increase
was due to higher airport concession rents, personnel and other vehicle
operating costs partially offset by lower insurance costs. These expenses were
28.9% of revenue for 1999, compared to 29.8% of revenue for 1998.
Net vehicle depreciation expense and lease charges increased $5.9
million, or 1.9%, for 1999 as compared to 1998, consisting of a $5.6 million
increase at Dollar and a $0.3 million increase at Thrifty. Net vehicle
depreciation expense increased $14.8 million, or 5.2%, due to a 10.4% increase
in depreciable fleet (11.2% at Dollar and 9.0% at Thrifty) partially offset by a
decline of 4.8% in the average depreciation rate (4.3% decrease at Dollar and a
5.3% decrease at Thrifty). The decline in depreciation rate includes $25.2
million net vehicle gains on the disposal of Non-Program Vehicles. In 1998, the
disposition of Non-Program Vehicles resulted in a net vehicle gain of $5.5
million. Lease charges, for vehicles leased from third parties, declined $8.9
million due to fewer vehicles leased during the year ended December 31, 1999.
Selling, general and administrative expenses of $190.9 million for 1999
increased from $163.3 million in 1998, comprised primarily of a $13.9 million
increase at Dollar and a $13.8 million increase at Thrifty. The higher costs
were 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 $6.4 million, or 7.2% to $95.1 million.
Net interest expense decreased as a percentage of revenue from 9.9% in 1998 to
9.5% in 1999. The increase in expense for the Group was due to the effect of
higher average vehicle debt levels partially offset by a decrease in vehicle
interest rates.
The tax provision for 1999 was $46.9 million. The effective rate of
44.1% and 45.3% in 1999 and 1998, respectively, differs from the U.S. statutory
rate due primarily to non-deductible amortization of costs in excess of net
assets acquired, state and local taxes and losses relating to Thrifty's Canadian
subsidiary for which no benefit was recorded. The improvement in the effective
rate as compared to 1998 was due to higher U.S. pre-tax income and improved
results in the Canadian operations.
Operating Results
The Group had income before income taxes of $106.6 million for 1999 as
compared to $68.9 million in 1998, a 54.7% increase. This growth was due to a
$29.0 million increase at Dollar and a $8.7 million increase at Thrifty.
30
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Revenues
Total revenues for the year ended December 31, 1998 increased $55.2
million, or 6.5%, to $898.9 million compared to 1997. The increase in total
revenues was due to an increase in leasing revenue of 22.9% over 1997 and a 2.5%
growth in rental revenue. Fees and services revenue increased $2.6 million due
to a final payment received related to Dollar's terminated European franchise
agreement and higher franchise fees and other revenue fees from franchisees.
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 1998 was $635.6 million, a 2.5%
increase from 1997. This increase was due primarily to a $44.2 million increase
for Dollar offset by a $28.7 million decline at Thrifty. The increase in vehicle
rental revenue at Dollar was the result of an increase of 6.6% in transactions
combined with a 1.0% increase in revenue per transaction. The rental revenue
growth at Dollar related to the acquisition of franchisees during 1998 totaled
$21.4 million, which represented 48% of Dollar's total rental revenue growth.
The decline at Thrifty was due to the re-franchising of several company-owned
stores during 1997 and early 1998.
Vehicle leasing revenue for 1998 was $202.4 million, a $37.7 million
increase from 1997. This increase in vehicle leasing revenue reflects an
increase of $38.9 million, or 29.9%, in Thrifty's leasing revenue primarily due
to a 23.9% increase in the average number of vehicles leased to franchisees
along with a 4.9% increase in the vehicle leasing rates. Dollar's leasing
revenue declined $1.2 million, or 3.6% due to a decrease in the average number
of vehicles leased to franchisees as a result of the acquisition of several
franchised locations during 1998.
Expenses
Total expenses increased 3.5% from $802.3 million in 1997 to $830.1
million in 1998. This increase was due primarily to a $28.5 million, or 4.9%
increase for Dollar offset by a $2.0 million, or 0.9% decline at Thrifty. Total
expenses as a percentage of revenue declined to 92.3% in 1998 from 95.1% in
1997.
Direct vehicle and operating expenses for 1998 increased $3.7 million,
or 1.4%, over 1997, comprised of a $14.6 million increase at Dollar offset by a
$10.9 million decline at Thrifty. The overall increase was due to higher
personnel costs, airport concession fees and tour account incentives at Dollar,
partially offset by a reduction of expenses at Thrifty as a result of the
re-franchising of several company-owned stores. These expenses were 29.8% of
revenue for 1998, compared to 31.3% of revenue for 1997. These expenses improved
as a percentage of revenue partially due to a decrease in the proportion of
total revenue generated from vehicle rentals at company-owned stores, which
carry additional costs not associated with vehicle leasing revenue. The shift in
revenue from vehicle rentals to vehicle leasing resulted primarily from
re-franchising several Thrifty company-owned stores in late 1997 and early 1998.
Net vehicle depreciation expense and lease charges increased $10.3
million or 3.5% for 1998 as compared to 1997, consisting of a $5.7 million
increase at Dollar and a $4.6 million increase at Thrifty. Net vehicle
depreciation expense increased $11.2 million, or 4.0%, due to a 5.4% increase in
depreciable fleet (6.1% at Dollar and 4.3% at Thrifty) partially offset by a
decline of 1.5% in the average depreciation rate (0.4% increase at Dollar and a
4% decrease at Thrifty). The decline in the depreciation rate includes $5.5
million net vehicle gains on the disposal of Non-Program Vehicles. In 1997, the
disposition of Non-Program Vehicles resulted in a net vehicle loss of $11.4
million. Lease charges, for vehicles leased from third parties, decreased $0.9
million due to fewer vehicles leased during 1998.
31
Selling, general and administrative expenses of $163.3 million for 1998
increased 9.1% from $149.7 million in 1997, comprised of a $11.0 million
increase at Dollar, a $0.7 million increase at Thrifty and a $1.9 million
increase for other operations. The higher costs were due to higher personnel
costs related to the development of new information technology systems, sales
and marketing and Year 2000 remediation costs. Higher expenses in 1998 were also
the result of one-time cost reductions in 1997 related to the settlement of a
$1.5 million condemnation claim and the reversal of a $1.1 million reserve
related to resolved litigation at Dollar and the elimination of a $1.9 million
reserve related to the sale of Snappy Car Rental in 1994. Selling, general and
administrative expenses for the Group were 18.1% of revenue for 1998 compared to
17.7% for 1997.
Net interest expense increased $0.9 million, or 1% to $88.7 million
comprised primarily of a $3.6 million increase at Thrifty partially offset by a
$2.1 million decrease at Dollar. Net interest expense decreased as a percentage
of revenue from 10.4% in 1997 to 9.9% in 1998. The increase in expense for the
Group was due to the effect of higher average vehicle debt levels partially
offset by a decrease in vehicle interest rates.
The tax provision for 1998 was $31.2 million. The effective rate of
45.3% in 1998 differs from the U.S. statutory rate due primarily to
non-deductible amortization costs in excess of net assets acquired, state and
local taxes and losses relating to Thrifty's Canadian subsidiary for which no
benefit was recorded. The effective rate for 1997 was 56.5% due primarily to
non-deductible amortization costs in excess of net assets acquired, losses
relating to Thrifty's Canadian subsidiary for which no benefit was recorded, and
the one-time tax charge of $4.3 million related to the separation from
DaimlerChrysler.
Operating Results
The Group had income before income taxes of $68.9 million for 1998 as
compared to $41.5 million in 1997, a 66.1% increase. This growth was due to a
$15.3 million increase at Dollar and a $13.6 million increase at Thrifty. Income
before income taxes declined for other operations in 1998 due primarily to the
elimination of a $1.9 million reserve during 1997 related to the sale of Snappy
Car Rental in 1994.
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. During
1999, cash provided by operating activities was $372.5 million. Net income
adjusted for depreciation, net of vehicle gains, primarily generated cash
provided by operating activities.
Cash used in investing activities was $583.4 million. The principal use
of cash in investing activities was the purchase of revenue-earning vehicles
which totaled $2.4 billion ($1.4 billion at Dollar and $1.0 billion at Thrifty)
which was partially offset by $1.9 billion ($1.1 billion at Dollar and $800
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. Fleet levels are the 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 cash provided from operations and increased
secured vehicle financing. Restricted cash and investments increased $82.4
million for the year ended December 31, 1999. 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 $23 million. These
expenditures consist primarily of airport facility improvements for the Group's
rental locations and investments in information technology equipment and
systems. The Group estimates non-vehicle capital expenditures to be
approximately $30 million in 2000. In addition, Dollar will pursue the
acquisition of certain franchisee operations, if available. These expenditures
are expected to be financed with cash provided from operations.
32
Cash provided by financing activities was $238.8 million primarily
provided by the issuance of $250 million in asset backed notes during 1999.
Asset Backed Notes
The asset backed note program is 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 $1.3 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 $140.0 million at December 31, 1999.
Commercial Paper Program and Liquidity Facility
At December 31, 1999, the Company's commercial paper program (the
"Commercial Paper Program") had a maximum size of $640 million supported by a
$575 million, 364-day liquidity facility (the "Liquidity Facility"). Borrowings
under the Commercial Paper Program are secured by eligible vehicle collateral
and bear interest based on market-dictated commercial paper rates. At December
31, 1999, the Group had $80.4 million in commercial paper outstanding under the
Commercial Paper Program. The Commercial Paper Program and the Liquidity
Facility are renewable annually. The Commercial Paper Program peaked in size
during the third quarter of 1999 when it reached $545.7 million to support the
seasonal increase in vehicle fleet.
Effective March 2, 2000, the Commercial Paper Program was renewed for
another year at a maximum size of $780 million, backed by a renewal of the
Liquidity Facility which was increased to $700 million.
Other Obligations and Vehicle Debt
Thrifty had financed its Canadian vehicle fleet under a lease agreement
with an unrelated auto leasing trust which provided for CND$125 million of
funding, which was supported by underlying bank financing that was required to
be renewed annually. 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 obtain vehicle financing up to CND$150 million funded
through a bank commercial paper conduit. At December 31, 1999, Thrifty had
approximately $45.4 million funded under this program.
On May 20, 1999, a vehicle manufacturer's finance subsidiary 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 expires in August 2000 and is renewable by mutual
agreement. At December 31, 1999, the Company had $67.9 million outstanding under
the line of credit.
Revolving Credit Facility
The Company has a $215 million 5-year, senior secured, revolving credit
facility (the "Revolving Credit Facility") that expires in 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 availability of funds under the Revolving Credit Facility is
subject to the Company's continued compliance with certain covenants, including
a covenant that sets the maximum amount the Company can spend annually on the
acquisition of fixed or capital assets, and certain financial covenants
including a maximum leverage ratio, a minimum fixed charge ratio and a minimum
interest expense coverage ratio. The Group is in compliance with all covenants.
At December 31, 1999, the Group had letters of credit outstanding under the
Revolving Credit Facility of approximately $37.8 million and no working capital
borrowings.
33
DaimlerChrysler Credit Support
In connection with the Company's separation from DaimlerChrysler and
completion of the Offering, DaimlerChrysler provided $38.2 million credit
support for the Group's vehicle fleet financing in the form of a letter of
credit facility. The credit support was reduced to $28.6 million due to the sale
of additional shares by the Company in the Offering. The letter of credit
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. At
December 31, 1999, the credit support amount was approximately $22.8 million.
The Company may need to replace reductions in the letter of credit 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.
Debt Servicing Requirements
The Group will continue to have substantial debt and debt service
requirements under its financing arrangements. As of December 31, 1999, the
Group's total consolidated debt and other obligations was approximately $1.6
billion, substantially all of which was secured debt for the purchase of
vehicles. The Group has scheduled annual principal payments of approximately
$475 million in 2000, $231 million in 2001, $172 million in 2002, $274 million
in 2003, $269 million in 2004 and $137 million thereafter.
The Group intends to use cash generated from operations for debt
service and, subject to restrictions under its debt instruments, to make capital
investments. The Company has historically repaid its debt and funded its capital
investments (aside from growth in its rental fleet) with cash provided from
operations and from the sale of vehicles. The Company has funded growth in its
vehicle fleet by incurring additional secured vehicle debt and cash generated
from operations. The Group expects to incur additional debt from time to time to
the extent permitted under the terms of its debt instruments.
The Group has significant requirements for bonds to support its
insurance programs and airport concession obligations. At December 31, 1999,
various insurance companies had issued approximately $79.0 million in bonds to
secure these obligations.
Interest Rate Risk
The Group's results of operations depend significantly on prevailing
levels of interest rates because of the large amount of debt it incurs to
purchase vehicles. In addition, the Group is exposed to increases in interest
rates because a portion of its debt bears interest at floating rates. The
Company estimates that, in 2000, approximately 25% of its average debt will bear
interest at floating rates. The amount of the Group's financing costs affects
the amount Dollar, Thrifty and their franchisees must charge their customers to
be profitable. See Note 8 of Notes to Consolidated Financial Statements.
34
Inflation
The increased acquisition cost of vehicles is the primary inflationary
factor affecting the Group. Many of the Group's other operating expenses are
also expected to increase with inflation. Management does not expect that the
effect of inflation on the Group's overall operating costs will be greater for
the Group than for its competitors.
Year 2000
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). Any date recording mechanism
within a 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 resulting in system failures or miscalculations
causing a disruption of operations.
The Group experienced no problems with its systems or disruption in
service due to the failure of third parties or their independent franchisees to
be Y2K compliant.
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, in the future, experience disruptions in operations that could
materially and adversely affect the Group's business, results of operations, and
financial condition in the future.
The Group's costs to remediate Y2K issues were $6.6 million. Certain
information technology projects to enhance systems and improve operating
efficiencies were delayed due to Y2K compliance efforts.
New Accounting Standards
Statement of Financial Accounting Standard ("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.
35
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information about the Group's market sensitive
financial instruments and 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.
Fair Value
Expected Maturity Dates December 31,
as of December 31, 1999 2000 2001 2002 2003 2004 Thereafter Total 1999
- ------------------------------- --------- --------- --------- --------- --------- ---------- --------- ------------
(U.S. dollars in thousands)
Debt
Vehicle obligations and other-
floating rates $162,997 $ 5,026 $ 1,343 $ 22,417 $ 108 $ 11,135 $ 203,026 $ 201,809
Weighted Average interest rates 6.86% 7.84% 8.30% 7.43% 8.30% 7.52%
Vehicle obligations and other-
fixed rates $264,181 $225,819 $170,386 $251,095 $269,036 $126,079 $1,306,596 $1,270,960
Weighted Average interest rates 6.40% 6.47% 6.45% 6.40% 6.22% 6.67%
Vehicle obligations and other-
Canadian dollar denominated $ 47,784 $ - $ - $ - $ - $ - $ 47,784 $ 47,784
Weighted Average interest rates 5.47%
Fair Value
Expected Maturity Dates December 31,
as of December 31, 1998 1999 2000 2001 2002 2003 Thereafter Total 1998
- ------------------------------- --------- --------- --------- --------- --------- --------- ---------- ------------
(U.S. dollars in thousands)
Debt
Vehicle obligations and other-
floating rates $170,006 $ - $ 4,000 $ - $ 22,269 $ 11,135 $ 207,410 $ 206,981
Weighted Average interest rates 6.34% 6.95% 6.65% 6.75%
Vehicle obligations and other-
fixed rates $ 2,282 $265,215 $226,120 $170,699 $207,400 $188,865 $1,060,581 $1,059,912
Weighted Average interest rates 8.50% 6.41% 6.48% 6.45% 6.50% 6.62%
Vehicle obligations and other-
Canadian dollar denominated $ 46,906 $ - $ - $ - $ - $ - $ 46,906 $ 46,906
Weighted Average interest rates 5.88%
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Dollar Thrifty Automotive Group, Inc.:
We have audited the accompanying consolidated balance sheet of Dollar
Thrifty Automotive Group, Inc. and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1999. Our audits also included the financial statement schedule listed in the
Index at Item 14. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Dollar Thrifty Automotive
Group, Inc. and subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Tulsa, Oklahoma
February 2, 2000, except for
Note 17 as to which the date is
March 2, 2000
37
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In Thousands Except Per Share Data)
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
REVENUES:
Vehicle rentals $714,407 $635,600 $620,045
Vehicle leasing 218,614 202,371 164,701
Fees and services 57,046 51,770 49,143
Other 8,685 9,225 9,899
-------- -------- --------
Total revenues 998,752 898,966 843,788
-------- -------- --------
COSTS AND EXPENSES:
Direct vehicle and operating 289,129 267,504 263,850
Vehicle depreciation and lease charges, net 311,113 305,169 294,911
Selling, general and administrative 190,994 163,256 149,697
Interest expense, net of interest income of $6,071,
$6,834 and $4,341 95,114 88,726 87,852
Amortization of cost in excess of net assets acquired 5,842 5,417 6,010
-------- -------- --------
Total costs and expenses 892,192 830,072 802,320
-------- -------- --------
INCOME BEFORE INCOME TAXES 106,560 68,894 41,468
INCOME TAX EXPENSE 46,974 31,229 23,427
-------- -------- --------
NET INCOME $ 59,586 $ 37,665 $ 18,041
======== ======== ========
Earnings per share:
Basic $ 2.47 $ 1.56 $ 0.90
======== ======== ========
Diluted $ 2.43 $ 1.56 $ 0.90
======== ======== ========
See notes to consolidated financial statements.
38
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 AND 1998
(In Thousands Except Share and Per Share Data)
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998
ASSETS
Cash and cash equivalents $ 77,500 $ 49,505
Restricted cash and investments 144,671 62,255
Receivables, net 140,156 115,423
Prepaid expenses and other assets 43,493 42,186
Revenue-earning vehicles, net 1,507,692 1,342,066
Property and equipment, net 69,941 62,747
Income taxes receivable 10,573 -
Deferred income tax asset - 8,554
Intangible assets, net 177,627 182,564
----------- -----------
$2,171,653 $1,865,300
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 57,242 $ 60,862
Accrued liabilities 115,232 87,945
Income taxes payable - 9,161
Deferred income tax liability 5,660 -
Public liability and property damage 58,783 77,619
Debt and other obligations 1,555,609 1,313,799
----------- -----------
Total liabilities 1,792,526 1,549,386
COMMITMENTS AND CONTINGENCIES (Note 14)
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 24,158,429
and 24,125,055, respectively 242 241
Additional capital 709,040 705,880
Accumulated deficit (329,464) (389,050)
Foreign currency translation adjustment (691) (1,157)
----------- -----------
379,127 315,914
----------- -----------
$2,171,653 $1,865,300
=========== ===========
See notes to consolidated financial statements.
39
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In Thousands Except Share and Per Share Data)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Foreign
$.01 Par Value Currency Total
----------------------- Additional Accumulated Translation Stockholders'
Shares Amount Capital Deficit Adjustment Equity
BALANCE, JANUARY 1, 1997 20,000,000 $ 200 $ 628,916 $(444,756) $ (477) $183,883
Issuance of common shares in
public offering 3,625,000 36 66,800 - - 66,836
Comprehensive income:
Net income - - - 18,041 - 18,041
Foreign currency translation - - - - (334) (334)
---------- ----- --------- --------- ------- --------
Total comprehensive income - - - 18,041 (334) 17,707
---------- ----- --------- --------- ------- --------
BALANCE, DECEMBER 31, 1997 23,625,000 236 695,716 (426,715) (811) 268,426
Issuance of common shares in
public offering 498,105 5 9,643 - - 9,648
Issuance of common shares for
director compensation 1,950 - 40 - - 40
Performance share incentive plan - - 481 - - 481
Comprehensive income:
Net income - - - 37,665 - 37,665
Foreign currency translation - - - - (346) (346)
---------- ----- --------- --------- ------- --------
Total comprehensive income - - - 37,665 (346) 37,319
---------- ----- --------- --------- ------- --------
BALANCE, DECEMBER 31, 1998 24,125,055 241 705,880 (389,050) (1,157) 315,914
Issuance of common shares for
director compensation 2,798 - 52 - - 52
Stock option transactions 30,576 1 866 - - 867
Performance share incentive plan - - 2,242 - - 2,242
Comprehensive income:
Net income - - - 59,586 - 59,586
Foreign currency translation - - - - 466 466
---------- ----- --------- --------- ------- --------
Total comprehensive income - - - 59,586 466 60,052
---------- ----- --------- --------- ------- --------
BALANCE, DECEMBER 31, 1999 24,158,429 $ 242 $ 709,040 $(329,464) $ (691) $379,127
========== ===== ========= ========= ====== ========
See notes to consolidated financial statements.
40
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 59,586 $ 37,665 $ 18,041
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 338,702 303,888 274,641
Amortization 8,927 7,708 8,239
Common stock option transactions 323 - -
Performance share incentive plan 2,242 481 -
Net losses (gains) from disposition of revenue-earning vehicles (25,248) (5,538) 11,431
Impairment losses - 1,305 -
Provision for losses on receivables 9,682 6,891 2,942
Deferred income taxes 14,214 (2,126) 9,251
Change in assets and liabilities, net of acquisitions:
Receivables (19,045) 26,654 (59,199)
Prepaid expenses, intangibles and other assets (2,304) (10,147) (8,463)
Accounts payable, accrued liabilities and income taxes payable/receivable 3,748 (21,363) 26,862
Public liability and property damage (18,836) 1,932 12,452
Other 548 311 (334)
----------- ----------- -----------
Net cash provided by operating activities 372,539 347,661 295,863
CASH FLOWS FROM INVESTING ACTIVITIES:
Revenue-earning vehicles:
Purchases (2,410,739) (2,093,581) (1,847,957)
Proceeds from sales 1,927,007 1,782,562 1,371,496
Restricted cash and investments, net (82,416) 75,725 (34,047)
Property and equipment:
Purchases (18,266) (15,785) (11,232)
Proceeds from sales 1,031 691 2,656
Acquisition of businesses, net of cash acquired - (4,617) (397)
----------- ----------- -----------
Net cash used in investing activities (583,383) (255,005) (519,481)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt and other obligations:
Proceeds 3,699,487 1,603,678 2,206,482
Payments (3,457,971) (1,708,819) (2,029,353)
Cash management/working capital - DaimlerChrysler, net - - 38,267
Issuance of common shares in public offering - 9,648 66,836
Issuance of common shares 544 - -
Vehicle financing issue costs (3,221) (3,732) (5,965)
----------- ----------- -----------
Net cash provided by (used in) financing activities 238,839 (99,225) 276,267
----------- ----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS 27,995 (6,569) 52,649
CASH AND CASH EQUIVALENTS:
Beginning of year 49,505 56,074 3,425
----------- ----------- -----------
End of year $ 77,500 $ 49,505 $ 56,074
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes to taxing authorities $ 52,343 $ 30,112 $ 3,235
=========== =========== ===========
Interest $ 95,038 $ 92,288 $ 95,253
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH OPERATING ACTIVITIES:
Reversal of valuation allowance on pre-acquisition net operating loss carryforwards $ - $ - $ 22,400
=========== =========== ===========
Issuance of common stock for director compensation $ 52 $ 40 $ -
=========== =========== ===========
Direct financing leases of vehicles to franchisees $ 14,780 $ - $ -
=========== =========== ===========
Notes receivables issued for franchise sales $ 590 $ - $ -
=========== =========== ===========
See notes to consolidated financial statements.
41
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
Dollar Thrifty Automotive Group,Inc.("Dollar Thrifty Group" or
the "Company") is the successor to Pentastar Transportation Group, Inc.
and subsidiaries. Prior to December 23, 1997, the Company was a wholly
owned subsidiary of Chrysler Corporation, now known as DaimlerChrysler
Corporation ("DaimlerChrysler"). On December 23, 1997, the Company
completed an initial public offering of all its outstanding common stock
owned by DaimlerChrysler together with additional shares issued by the
Company (Note 9).
The Company's significant wholly owned subsidiaries include
Dollar Rent A Car Systems, Inc. ("Dollar"), Thrifty, Inc., Rental Car
Finance Corp.("RCFC") and Dollar Thrifty Funding Corp. ("DTFC"). 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"). Dollar and Thrifty were acquired
in 1990 and 1989, respectively. The acquisitions were accounted for using
the purchase method of accounting and the purchase prices were allocated
to the assets acquired and liabilities assumed based on their estimated
fair values, which are reflected in the accompanying consolidated
financial statements. RCFC and DTFC are special purpose financing
entities for the Dollar Thrifty Group, which were formed in 1995 and
1998, respectively. The term the "Company" is used to refer to Dollar
Thrifty Group and subsidiaries, collectively, and to the individual
subsidiaries of Dollar Thrifty Group. Intercompany accounts and
transactions have been eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Dollar and Thrifty are engaged in the
business of the daily rental of vehicles to business and leisure
customers through company-owned stores and in the business of leasing
vehicles to their franchisees for use in the daily vehicle rental
business throughout the United States and Canada. Dollar and Thrifty are
also involved in selling vehicle rental franchises worldwide and
providing sales and marketing, reservations, data processing systems,
insurance and other services to their franchisees. RCFC and DTFC provide
financing services to Dollar and Thrifty.
Estimates - The preparation of the Company's consolidated
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents - Cash and cash equivalents include
cash on hand and on deposit, including highly liquid investments with
initial maturities of three months or less.
Restricted Cash and Investments - Restricted cash and
investments are restricted for the acquisition of vehicles and other
specified uses under the rental car asset backed note indenture and other
agreements (Note 8). These funds are primarily held in a highly rated
money market fund with investments primarily in government and corporate
obligations with a dollar-weighted average maturity not to exceed 60
days, as permitted by the indenture. Restricted cash and investments are
excluded from cash and cash equivalents. Interest earned on restricted
cash and investments was $2,379,000, $4,706,000 and $2,382,000 for 1999,
1998 and 1997, respectively.
42
Allowance for Doubtful Accounts - An allowance for doubtful
accounts is generally established during the period in which receivables
are recorded. The allowance is maintained at a level deemed appropriate
based on loss experience and other factors affecting collectibility.
Revenue-Earning Vehicles - Revenue-earning vehicles are stated
at cost net of related discounts and are depreciated over their estimated
economic lives, or at rates corresponding to manufacturers' guaranteed
residual values, where applicable. Depreciation rates range from
approximately 0.9% to 2.4% per month. Net gains and losses from sales of
revenue-earning vehicles are recorded as an adjustment to vehicle
depreciation.
Property and Equipment - Property and equipment are recorded at
cost and are depreciated or amortized using principally the straight-line
basis over the estimated useful lives of the related assets. Estimated
useful lives range from ten to thirty years for buildings and
improvements and three to seven years for furniture and equipment.
Leasehold improvements are amortized over the shorter of ten years or the
lives of the related leases.
Intangible Assets - Intangible assets are amortized using the
straight-line basis. Cost in excess of net assets acquired is amortized
over forty and twenty-year periods. Other intangible assets are amortized
over primarily five years. The Company continually assesses the
recoverability of the cost in excess of net assets acquired based on its
estimates of the expected future cash flows of the operations to which
such amounts relate.
Long-Lived Assets - The Company reviews the value of long-lived
assets and certain identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable based upon estimated future cash flows.
Accounts Payable - Disbursements in excess of bank balances of
$42,277,000 and $42,393,000 are included in accounts payable at December
31, 1999 and 1998, respectively.
Public Liability and Property Damage - Provisions for public
liability and property damage on self-insured claims are made by charges
primarily to direct vehicle and operating expense. Accruals for such
charges are based upon actuarially determined evaluations of estimated
ultimate liabilities on reported and unreported claims, prepared on at
least an annual basis by an independent actuary. Historical data related
to the amount and timing of payments for self-insured claims are utilized
in preparing the actuarial evaluations. The accrual for public liability
and property damage claims is discounted based upon the independently
prepared, actuarially determined estimated timing of payments to be made
in the future. Management reviews the actual timing of payments as
compared with the annual actuarial estimate of timing of payments and has
determined that there have been no material differences in the timing of
payments for each of the three years in the period ended December 31,
1999.
Foreign Currency Translation - Foreign assets and liabilities
are translated using the exchange rate in effect at the balance sheet
date, and results of operations are translated using an average rate for
the period. Translation adjustments are accumulated and reported as a
component of stockholders' equity and comprehensive income.
Revenue Recognition - The Company rents revenue-earning vehicles
under short-term rental contracts. Revenues are recognized as earned
under the terms of the rental contracts. The Company also leases
revenue-earning vehicles to franchisees primarily under operating leases.
Revenues are recognized as earned over the lease term.
43
Initial franchise fees are recognized at the date of sale of the
franchise, which coincides with commencement of operations by the
franchisee. Continuing franchise fees are reported as revenue as the fees
are earned.
Advertising Costs - Advertising costs are primarily expensed as
incurred. The Company incurred advertising expense of $34,142,000,
$35,863,000 and $37,000,000 for 1999, 1998 and 1997, respectively.
Thrifty's primary advertising is conducted by an unconsolidated
affiliated entity, Thrifty Rent-A-Car System, Inc. National Advertising
Committee ("Thrifty National Ad"). Thrifty made payments of $2,865,000,
$3,073,000 and $4,222,000 in 1999, 1998 and 1997, respectively, to
Thrifty National Ad to support funding of advertising campaigns, which
are included in advertising costs. Thrifty also received reimbursement
from Thrifty National Ad for administrative services performed of
$2,392,000, $1,790,000 and $1,741,000 during 1999, 1998 and 1997,
respectively, which are recorded as offsets to selling, general and
administrative expense.
Environmental Costs - The Company's operations include the
storage of gasoline in underground storage tanks at certain company-owned
stores. Liabilities incurred in connection with the remediation of
accidental fuel discharges are recorded when it is probable that
obligations have been incurred and the amounts can be reasonably
estimated.
Income Taxes - Prior to December 23, 1997, the Company's U.S.
operations were included in the consolidated U.S. income tax returns of
DaimlerChrysler. U.S. operating results subsequent to that date are
included in the Company's U.S. consolidated returns. The Company has
provided for income taxes on its separate taxable income or loss and
other tax attributes. Deferred income taxes are provided for the
temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities. A valuation allowance is
recorded for deferred income tax assets when management determines it is
more likely than not that such assets will not be realized.
Earnings Per Share - Basic earnings per share ("EPS") is
computed by dividing net income by the weighted average number of common
shares outstanding during the period. Diluted EPS 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 EPS, the Company has utilized
the treasury stock method.
Stock-Based Compensation - The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Compensation cost for stock options, if any, is measured as
the excess of the quoted market price of the Company's stock at the date
of grant over the amount an employee must pay to acquire the stock.
Compensation cost for shares issued under performance share plans is
recorded based upon the current market value of the Company's stock at
the end of each period. The Company has adopted the disclosure
requirements of Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation."
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. Adoption of SOP 98-1 did not have a material impact on the Company's
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 effective date of SFAS No. 133 was delayed for one year to
fiscal years beginning after June 15, 2000. The Company plans to adopt
the standard when required.
44
Reclassifications - Certain reclassifications have been made in
the 1998 and 1997 consolidated financial statements to conform to the
classifications used in 1999.
3. ACQUISITIONS
During 1998, Dollar acquired certain assets and assumed certain
liabilities of its former San Diego and Phoenix franchisees. Total cash
paid for these two acquisitions was $4,617,000, net of cash acquired.
These transactions have been accounted for using the purchase method of
accounting and operating results of the acquirees from the dates of
acquisition, which are not material to the year of acquisition, are
included in the consolidated statement of income of the Company. At
December 31, 1999, cost in excess of net assets of Dollar franchisees
acquired of $31,635,000 is being amortized on the straight-line basis
over twenty years.
4. RECEIVABLES
Receivables consist of the following:
December 31,
-----------------------------
1999 1998
(In Thousands)
Trade accounts receivable $ 85,955 $ 75,943
Notes receivable 7,152 8,684
Financing receivables, net 14,090 -
Due from DaimlerChrysler 50,727 45,706
-------- --------
157,924 130,333
Less allowance for doubtful accounts (17,768) (14,910)
-------- --------
$140,156 $115,423
======== ========
Trade accounts and notes receivable include primarily amounts
due from franchisees and tour operators arising from billings under
standard credit terms for services provided in the normal course of
business and amounts due from the sale of revenue-earning vehicles.
Included in trade accounts receivable at December 31, 1999 and 1998 is
approximately $1,106,000 and $903,000, respectively, due from a tour
operator, which is owned by a director of the Company. Notes receivable
are generally issued to certain franchisees at current market interest
rates with varying maturities and are generally guaranteed by
franchisees.
Financing receivables arise from direct financing leases of
vehicles with franchisees. These receivables have terms up to a year and
are collateralized by the vehicles. Financing receivables are presented
net of unearned income of $285,000 at December 31, 1999.
Due from DaimlerChrysler is comprised primarily of amounts due
under various incentive and promotion programs. In 1997, the Company
recorded net interest income of $1,873,000 on working capital amounts due
from DaimlerChrysler. A director of the Company is an executive officer
of DaimlerChrysler.
45
5. REVENUE-EARNING VEHICLES
Revenue-earning vehicles consist of the following:
December 31,
-------------------------------
1999 1998
(In Thousands)
Revenue-earning vehicles $1,659,926 $1,477,506
Less accumulated depreciation (152,234) (135,440)
---------- ----------
$1,507,692 $1,342,066
========== ==========
Dollar and Thrifty entered into U.S. Vehicle Supply Agreements
("VSAs") with DaimlerChrysler, which commenced with the 1997 model year
and expire in July 2001. Under the VSAs, DaimlerChrysler has agreed to
supply certain specified volumes of vehicles, which are comprised of
approximately 80% guaranteed depreciation program vehicles ("Program
Vehicles"). Dollar and Thrifty are required to purchase at least 80% of
their vehicles from DaimlerChrysler, up to specified volumes of which
minimum amounts must be Program Vehicles. Under the terms of the VSAs,
Dollar and Thrifty have agreed to advertise and promote DaimlerChrysler
products exclusively, and will receive promotional payments from
DaimlerChrysler for each model year. Purchases of revenue-earning
vehicles from DaimlerChrysler and DaimlerChrysler Canada Inc.
("DaimlerChrysler Canada") were $2,101,537,000, $2,007,406,000 and
$1,765,825,000 during 1999, 1998 and 1997, respectively.
Rent expense for vehicles leased from other vehicle
manufacturers and third parties under operating leases was $7,787,000,
$16,664,000 and $17,635,000 for 1999, 1998 and 1997, respectively, and is
included in vehicle depreciation and lease charges, net. Amounts due over
the next three years for vehicles under operating leases with terms
greater than one year total $1,120,000.
Vehicle acquisition terms provide for guaranteed residual values
in the U.S. or buybacks in Canada of the majority of vehicles, under
specified conditions. Guaranteed residual and buyback payments received
are included in proceeds from sales of revenue-earning vehicles.
Additionally, the Company receives promotional payments and other
incentives primarily related to the disposal of revenue-earning vehicles,
which amounts are reflected as offsets to direct vehicle and operating
expense. Promotional payments are primarily amortized on the
straight-line basis over the respective model year to which the
promotional payments relate. The Company also receives interest
reimbursement for Program Vehicles while at auction and for certain
delivery related interest costs, which amounts are reflected in interest
expense, net. Amounts recorded from DaimlerChrysler and DaimlerChrysler
Canada for guaranteed residual value program payments, promotional
payments, interest reimbursement and other incentives totaled
$312,932,000, $339,575,000 and $269,070,000 in 1999, 1998 and 1997,
respectively. Buyback payments received from DaimlerChrysler Canada were
$69,545,000, $64,413,000 and $78,385,000 in 1999, 1998 and 1997,
respectively.
The Company acquires some vehicles from other manufacturers, the
majority of which are subject to guaranteed buyback at established values
by the manufacturers.
46
6. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
December 31,
------------------------
1999 1998
(In Thousands)
Land $ 14,325 $ 14,275
Buildings and improvements 15,563 14,380
Furniture and equipment 41,556 35,510
Leasehold improvements 43,986 36,743
Construction in progress 9,006 7,571
------- --------
124,436 108,479
Less accumulated depreciation and amortization (54,495) (45,732)
-------- --------
$ 69,941 $ 62,747
======== ========
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31,
---------------------------
1999 1998
(In Thousands)
Cost in excess of net assets acquired $ 257,248 $257,232
Other 24,723 30,576
--------- --------
281,971 287,808
Less accumulated amortization (104,344) (105,244)
--------- --------
$ 177,627 $182,564
========= ========
47
8. DEBT AND OTHER OBLIGATIONS
Debt and other obligations consist of the following (in thousands):
December 31,
---------------------------
1999 1998
(In Thousands)
Vehicle Debt and Other Financing:
Asset backed notes:
1999 Series notes $ 250,000 $ -
1997 Series notes 900,000 900,000
1995 Series notes 194,000 283,667
---------- ----------
1,344,000 1,183,667
Discounts on asset backed notes (689) (669)
---------- ----------
Asset backed notes, net of discount 1,343,311 1,182,998
Commercial paper, net of discount of $1,217 and $429 80,376 79,786
Other vehicle debt 86,452 3,884
Limited partner interest in limited partnership 45,361 -
Deferred vehicle rent - 46,906
---------- ----------
Total vehicle debt and other financing 1,555,500 1,313,574
Other notes payable 109 225
---------- ----------
Total debt and other obligations $1,555,609 $1,313,799
========== ==========
Vehicle Debt and Other Financing
Asset Backed Notes are comprised of rental car asset backed
notes issued by RCFC in April 1999 (the "1999 Series notes"), December
1997 (the "1997 Series notes") and December 1995 (the "1995 Series
notes").
The 1999 Series notes are comprised of fixed rate notes, with
rates ranging from 5.9% to 7.1%.
The 1997 Series notes are comprised of $866,596,000 of fixed
rate notes, with rates ranging from 6.25% to 6.8% and $33,404,000 of
floating rate notes with interest at rates ranging from LIBOR plus .95%
to LIBOR plus 1.05% (7.42% to 7.52% at December 31, 1999 and 6.61% to
6.71% at December 31, 1998).
The 1995 Series notes are comprised of $190,000,000 (1999 and
1998) of 6.6% fixed rate notes and $4,000,000 (1999) and $93,667,000
(1998) floating rate notes, with an interest rate of LIBOR plus .70% to
LIBOR plus 1.25% (7.72% and 6.36% to 6.91% at December 31, 1999 and 1998,
respectively).
The assets of RCFC, including revenue-earning vehicles related
to the asset backed notes, restricted cash and investments, and certain
receivables related to revenue-earning vehicles, are available first to
satisfy the claims of its creditors. At December 31, 1999 and 1998,
letters of credit totaling $22,848,000 and $28,560,000, respectively,
issued on behalf of DaimlerChrysler, also serve as collateral for the
asset backed notes. These letters of credit will continue to decline over
the next four years. DaimlerChrysler has liens on and collateral interest
in certain assets of the Company. Dollar and Thrifty lease vehicles from
RCFC under the terms of a master lease and servicing agreement. The asset
backed note indentures also provide for additional credit enhancement
through overcollateralization of the vehicle fleet or other letters of
credit and maintenance of a liquidity reserve. RCFC is in compliance with
the terms of the indentures.
48
The asset backed notes mature from 2000 through 2005 and are
generally subject to repurchase on any payment date subject to a
prepayment penalty.
Commercial Paper represents borrowings under a $640,000,000
Commercial Paper Program as a part of the existing asset backed note
program. Proceeds are used for financing of vehicle purchases and for
periodic refinancing of asset backed notes. Concurrently with the
establishment of the Commercial Paper Program, the Company also entered
into a 364-day, $575,000,000 Liquidity Facility to support the Commercial
Paper Program. The Liquidity Facility provides the Commercial Paper
Program with an alternative source of funding if the Company is unable to
refinance maturing commercial paper by issuing new commercial paper.
Commercial paper bears interest at rates ranging from 6.1% to 6.3% at
December 31, 1999 and 5.2% to 5.9% at December 31, 1998 and matures
within 31 days of December 31, 1999.
Other Vehicle Debt at December 31, 1999 includes borrowings of
$67,938,000 under $102,000,000 revolving lines of credit with a vehicle
manufacturer's finance subsidiary which bear interest at rates based on
commercial paper rates (7.23% at December 31, 1999). Also included in
other vehicle debt in 1999 are borrowings of $10,140,000 under a
$12,000,000 revolving line of credit which bears interest at rates based
on LIBOR (8.4% at December 31, 1999). These revolving credit facilities
have one-year terms and the $102,000,000 line is renewable for successive
one-year terms by mutual agreement. The lines are collateralized by the
vehicles financed under the facilities. Borrowings of $5,951,000 and
$3,884,000 at December 31, 1999 and 1998, respectively, with a weighted
average interest rate at December 31, 1999 and 1998 of 8.35% and 8.5%,
respectively, which are collateralized by shuttle buses and other
vehicles financed, are also included in other vehicle debt.
Limited Partner Interest in Limited Partnership - In February
1999, TCL entered into a partnership agreement (the "Partnership
Agreement") with an unrelated bank's conduit (the "Limited Partner").
This transaction included the creation of a limited partnership (TCL
Funding Limited Partnership, "Partnership"). TCL is the General Partner
in the Partnership. The Limited Partner's interest is reflected as
Limited Partner Interest in Limited Partnership.
The Partnership Agreement has a five-year term, subject to
extension, with the purpose to purchase, own, lease and rent vehicles
throughout Canada. The Limited Partner has committed to funding
approximately CDN$150 million (approximately US$104 million at December
31, 1999) to the Partnership which they fund through issuance and sale of
notes in the Canadian commercial paper market.
TCL, as General Partner, is allocated the remainder of the
partnership net income after distribution of the income share of the
Limited Partner, which is based on the weighted average capital balance
of the Limited Partner multiplied by a rate which is based on the average
commercial paper rate. At December 31, 1999, this rate was 5.4%. The
Limited Partner's income share amounted to $1,854,000 in 1999 which is
included in interest expense. Due to the nature of the relationship
between TCL and the Partnership, the accompanying consolidated statements
include the accounts of the Partnership.
Any amounts due to TCL which are directly related to the
vehicles, including vehicle rental revenues, payments from licensees and
proceeds from vehicle disposition programs, are vested in the
Partnership. Upon disposition of vehicles, proceeds in excess of that
required to fund further vehicle purchases are distributed to the
Partners in proportion to their capital accounts.
TCL entered into a CDN$15 million (approximately US$10.3 million
at December 31, 1999) revolving line of credit to support its investment
in the Partnership. At December 31, 1999, CDN$3.5 million (approximately
US$2.4 million) was outstanding under this line of credit, which is
included in other vehicle debt. The weighted average interest rate on the
line at December 31, 1999 was 6.7%.
49
The Partnership Agreement requires the maintenance of certain
letters of credit and contains various restrictive covenants, including a
limitation on the percentage of vehicles which are not covered by
manufacturer repurchase programs and the maintenance by TCL of a
specified minimum tangible net worth. The line of credit agreement also
requires the maintenance of letters of credit and the maintenance of a
specified minimum tangible net worth by TCL.
Deferred Vehicle Rent - Prior to February 1999, TCL financed its
revenue-earning vehicles under a Master Concurrent Lease Agreement (the
"Lease Agreement") with an unrelated auto leasing trust ("Leasing
Trust"). Under the Lease Agreement, Leasing Trust prepaid 91% of the
total lease rent due to TCL at the inception of the leases. In September
1999, the Lease Agreement was terminated and the remaining CDN$13.3
million (approximately US$9.1 million) of financed vehicles were sold to
the Partnership at net book value. The weighted average interest rate on
deferred vehicle rent at December 31, 1998 was 5.9%.
Expected repayments of vehicle debt and obligations outstanding
at December 31, 1999 are as follows:
2000 2001 2002 2003 2004 Thereafter
(In Thousands)
Asset backed notes $ 264,181 $ 229,819 $ 170,386 $ 273,364 $ 269,036 $ 137,214
Commercial paper 81,593 - - - - -
Other vehicle debt 83,827 1,026 1,343 148 108 -
Limited partner
interest 45,361 - - - - -
--------- --------- --------- --------- --------- ---------
Total $ 474,962 $ 230,845 $ 171,729 $ 273,512 $ 269,144 $ 137,214
========= ========= ========= ========= ========= =========
During 1997, while the Company was a subsidiary of
DaimlerChrysler, total interest expense on all DaimlerChrysler vehicle
and other debt, net of interest subvention, was $55,425,000.
Other Notes Payable
In December 1997, the Company established a five-year,
$215,000,000 Senior Secured Revolving Credit Facility (the "Revolver").
The Revolver provides sub-limits up to $190,000,000 for letters of credit
and up to $70,000,000 for working capital borrowings. As of December
31,1999, the Company is required to pay a 0.30% commitment fee on the
unused available line, a 1.75% letter of credit fee on the aggregate
amount of outstanding letters of credit and a 0.125% letter of credit
issuance fee. Interest rates on loans under the Revolver are, at the
option of the Company, based on the prime, Federal funds or Eurodollar
rates and are payable quarterly. The Revolver is collateralized by a
first priority lien on substantially all material non-vehicle assets of
the Company. The Revolver contains various restrictive covenants,
including maintenance of certain financial ratios consisting of minimum
net worth, adjusted EBITDA, fixed charge, leverage and interest coverage
ratios and the restriction of cash dividends. The Company had letters of
credit of $37,845,000 and $20,059,000 and no working capital borrowings
outstanding under the Revolver at December 31, 1999 and 1998,
respectively.
Maturities of other notes payable at December 31, 1999 are as
follows: $43,000 (2000), $48,000 (2001) and $18,000 (2002).
50
9. STOCKHOLDERS' EQUITY
The Company completed an initial public offering of its common
stock on December 23, 1997. The Company issued and sold 3,625,000 shares
of its common stock (2,500,000 "primary shares" and 1,125,000 "over
allotment shares") and DaimlerChrysler sold all of the 20,000,000
outstanding shares of the Company's common stock that it owned
("secondary shares"). On January 15, 1998, 498,105 additional over
allotment shares were issued by the Company. The common stock was sold at
an initial price of $20.50 per share. The Company received net proceeds
of $66,836,000 and $9,648,000, respectively, from the issuance of the
shares. The proceeds received by the Company from the offering were
initially used to provide collateral for financing of revenue-earning
vehicles and for other general corporate purposes.
On July 23, 1998, the Company adopted a stockholders' rights
plan. The rights were issued on August 3, 1998, to stockholders of record
on that date, and will expire on August 3, 2008, unless earlier redeemed,
exchanged or amended by the Board of Directors.
The plan provides for the issuance of one right for each
outstanding share of the Company's common stock. Upon the acquisition by
a person or group of 15% or more of the Company's outstanding common
stock, the rights generally will become exercisable and allow the
stockholder, other than the acquiring person or group, to acquire common
stock at a discounted price.
The plan also includes an exchange option after the rights
become exercisable. The Board of Directors may effect an exchange of part
or all of the rights, other than rights that have become void, for shares
of the Company's common stock for each right. The Board of Directors may
redeem all rights for $.01 per right, generally at any time prior to the
rights becoming exercisable.
The issuance of the rights had no dilutive effect on the number
of common shares outstanding and did not affect earnings per share.
51
10. EARNINGS PER SHARE
The computation of weighted average common and common equivalent
shares used in the calculation of basic and diluted EPS is shown below:
1999 1998 1997
(In Thousands, Except Share and Per Share Data)
Net Income $ 59,586 $ 37,665 $ 18,041
========== ========== ==========
Basic EPS:
Weighted average common shares 24,136,050 24,105,837 20,089,384
========== ========== ==========
Basic EPS $ 2.47 $ 1.56 $ 0.90
========== ========== ==========
Diluted EPS:
Weighted average common shares 24,136,050 24,105,837 20,089,384
Shares contingently issuable:
Stock options 205,576 43,569 -
Performance awards 131,467 37,350 -
Director compensation shares deferred 12,008 3,197 -
---------- ---------- ----------
Shares applicable to diluted 24,485,101 24,189,953 20,089,384
========== ========== ==========
Diluted EPS $ 2.43 $ 1.56 $ 0.90
========== ========== ==========
Options to purchase 1,584,000 and 1,155,000 shares of common
stock were outstanding at December 31, 1999 and 1998, respectively, but
were not included in the computation of diluted earnings per share
because the exercise price was greater than the average market price of
the common shares.
11. EMPLOYEE BENEFIT PLANS
Employee Benefit Plans
The Company sponsors a retirement savings plan that incorporates
the salary reduction provisions of Section 401(k) of the Internal Revenue
Code and covers substantially all employees of the Company meeting
specific age and length of service requirements. The Company contributes
50% up to 5% of the employee's contribution for a maximum matching
contribution by the Company of 2-1/2% of the employee's base salary.
Contributions by the Company amounted to $1,598,000, $1,090,000 and
$983,000 in 1999, 1998 and 1997, respectively.
During 1999, certain enhancements to the Company contribution
provision of the retirement savings plan were adopted. Effective January
1, 2000, the Company's 50% match was increased and applies up to 6% of
the employee's contribution for a maximum matching contribution of 3% of
the employee's base salary.
Included in accrued liabilities at December 31, 1999 and 1998
is $2,301,000 and $1,753,000, respectively, for employee health claims,
which are self-insured by the Company. The accrual includes amounts for
incurred and incurred but not reported claims.
52
The Company has bonus and profit sharing plans for all
employees based on company performance. Expense related to these plans
was $17,096,000, $8,109,000 and $7,313,000 in 1999, 1998 and 1997,
respectively.
Deferred Compensation and Retirement Plans
The Company has deferred compensation and retirement plans
providing key executives with the opportunity to defer compensation,
including related investment income. Under the deferred compensation
plan, the Company contributes up to 7% of participant cash compensation.
Participants become fully vested under both the deferred compensation and
retirement plans after five years of service. The total of participant
deferrals in the deferred compensation and retirement plans, which are
reflected in accrued liabilities, was $10,791,000 and $4,992,000 as of
December 31, 1999 and 1998, respectively. Expense related to these plans
totaled $4,525,000, $2,086,000 and $273,000 in 1999, 1998 and 1997,
respectively.
Long-Term Incentive Plan
The Company has a long-term incentive plan ("LTIP") for
employees and non-employee directors which provides for grants in the
form of nonqualified stock options, incentive stock options, stock
appreciation rights, restricted stock, performance share awards and other
stock-based incentive awards. Ten percent of the Company's common stock
outstanding was authorized for issuance under the LTIP (2,415,843
shares), with a share addition provision that allows for the number of
shares reserved to increase by 10% of any newly issued shares.
The Board of Directors, upon the recommendation of the Human
Resources and Compensation Committee, is authorized to award stock
options. The exercise prices for nonqualified stock options are equal to
the fair market value of the Company's common stock at the date of grant,
except for the initial grant which was made at the initial public
offering price. The options vest in three equal annual installments
commencing on the first anniversary of the grant date and have a term not
exceeding ten years from the date of grant.
Performance share awards are granted to Company officers and
certain key employees. Such awards established a target number of shares
that may be earned in three equal annual installments commencing on the
first anniversary of the grant date. The number of performance shares
ultimately earned is expected to range from zero to 200% of the target
award, depending on the level of corporate performance each year against
annual profit targets and stock price appreciation targets. Any
performance share installments not earned as of a given anniversary date
are forfeited. Performance shares earned are delivered on the third
anniversary of the initial grant, provided the grantee is then employed
by the Company. Values of the performance shares earned will be
recognized as compensation expense over the vesting period of the grants.
At December 31, 1999, performance shares earned in 1998 and 1999, net of
forfeitures, and the target award for 2000 totaled approximately 180,000
shares. All shares earned will vest on January 31, 2001. These shares
would become immediately vested under certain circumstances, including a
change of control. The Company recognized $2,242,000 and $481,000 of
compensation cost in 1999 and 1998, respectively, for performance share
awards.
53
The status of the Company's stock option plan is summarized below:
Weighted
Number of Average
Shares Exercise
(In Thousands) Price
Outstanding at December 31, 1997 - $ -
Granted 1,677 17.60
Exercised - -
Canceled (34) 19.68
------ -------
Outstanding at December 31, 1998 1,643 17.56
Granted 505 19.07
Exercised (30) 15.04
Canceled (81) 16.31
------ -------
Outstanding at December 31, 1999 2,037 $ 18.02
====== =======
Options exercisable at:
December 31, 1999 868 $ 18.91
December 31, 1998 396 $ 20.31
Accounting for Stock-Based Compensation
As stated in Note 2, the Company has elected to follow the
intrinsic value approach prescribed in APB Opinion No. 25 in accounting
for its employee stock plans. The Company has adopted the disclosure-only
provisions of SFAS No. 123. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at the
grant date as prescribed by SFAS No. 123, net income for 1999 would have
been reduced from the amount as reported of $59,586,000 to the pro forma
amount of $57,259,000 and net income for 1998 would have been reduced
from the amount as reported of $37,665,000 to the pro forma amount of
$34,377,000. Earnings per share as reported of $2.43 and $1.56 would have
been reduced to the pro forma amount of $2.34 and $1.42, respectively.
The pro forma amounts noted reflect the portion of the
estimated fair value of awards earned in 1999 and 1998 based on the
vesting period of the options. No awards were granted prior to December
31, 1997.
The Black-Scholes option valuation model was used to estimate
the fair value of the options at the date of grant for purposes of the
pro forma amounts noted. The following assumptions were used for both
1999 and 1998: weighted-average expected life of the awards of five
years, volatility factor of 37.5%, risk-free interest rate of 5.75% and
4.74%, respectively, and no payment of dividends. Based on this model,
the weighted-average fair value of options granted during 1999 and 1998
was $8.03 and $7.10 per share, respectively.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock volatility. Because the Company's employee stock options
have characteristics significantly different from those traded options,
and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair
value of the employee stock options.
54
The following table summarizes information regarding fixed
stock options that were outstanding at December 31, 1999:
Options Outstanding Options Exercisable
------------------------------------------------- --------------------------------
Weighted-Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Life Exercise Exercisable Exercise
Prices (In Thousands) (In Years) Price (In Thousands) Price
$10.50 - $19.1875 909 9.24 $ 14.93 138 $ 10.50
$20.50 - $21.1875 1,128 8.03 20.52 730 20.50
------ ----- ------- ----- -------
$10.50 - $21.1875 2,037 8.57 $ 18.02 868 $ 18.91
====== ===== ======= ===== =======
Under certain circumstances, including a change of control of
the Company, the options outstanding would be exercisable immediately.
12. INCOME TAXES
Income tax expense consists of the following:
Year Ended December 31,
-------------------------------------------
1999 1998 1997
(In Thousands)
Current:
Federal $28,245 $28,879 $13,259
State and local 4,035 4,126 504
Foreign 480 350 413
------- ------- -------
32,760 33,355 14,176
Deferred:
Federal 12,437 (1,860) 8,653
State and local 1,777 (266) 598
------- ------- -------
14,214 (2,126) 9,251
------- ------- -------
$46,974 $31,229 $23,427
======= ======= =======
Foreign losses before income taxes were approximately
$549,000, $1,727,000 and $2,368,000 in 1999, 1998 and 1997, respectively.
Intercompany tax settlements for tax periods prior to December
23, 1997 resulted in payments to DaimlerChrysler of $6,320,000 and
$676,000 in 1998 and 1997, respectively.
55
Deferred tax assets and liabilities consist of the following:
December 31,
----------------------
1999 1998
(In Thousands)
Deferred tax assets
Public liability and property damage $ 22,086 $ 30,152
Allowance for doubtful accounts and notes receivable 5,426 5,617
Other accrued liabilities 17,073 12,940
Federal and state NOL credits and carryforwards 4,059 5,328
Canadian NOL carryforwards 1,607 5,255
Canadian depreciation 2,145 246
Other Canadian temporary differences 4,018 1,587
Other - 4,041
-------- --------
56,414 65,166
Valuation allowance (7,770) (7,088)
-------- --------
Total $ 48,644 $ 58,078
======== ========
Deferred tax liabilities
Depreciation $ 53,717 $ 49,524
Other 587 -
-------- --------
Total $ 54,304 $ 49,524
======== ========
The Company has net operating loss carryforwards available in
certain states to offset future state taxable income. At December 31,
1999, TCL has net operating loss carryforwards of approximately
$3,625,000 available to offset future taxable income in Canada, which
expire through 2002. Valuation allowances have been established for the
total estimated future tax effect of the Canadian net operating losses
and other deferred tax assets.
The tax provision in 1997 includes a $4,314,000 one-time charge
related to the separation of the Company from DaimlerChrysler.
In connection with the Company's separation from DaimlerChrysler
in December 1997, the Company realized certain pre-acquisition net
operating loss carryforwards for which valuation allowances had
previously been established. The realization of these net operating loss
carryforwards resulted in a reduction of cost in excess of net assets
acquired and income tax valuation allowances of $22,400,000.
56
The Company's effective tax rate differs from the maximum U.S.
statutory income tax rate. The following summary reconciles taxes at the
maximum U.S. statutory rate with recorded taxes:
Year Ended December 31,
------------------------------------------------------------------------
1999 1998 1997
---------------------- ----------------------- ---------------------
Amount Percent Amount Percent Amount Percent
(Amounts in Thousands)
Tax expense
computed at the maximum
U.S. statutory rate $ 37,296 35.0 % $ 24,113 35.0 % $ 14,514 35.0 %
Difference resulting from:
Amortization of cost in excess
of net assets acquired 1,871 1.8 1,774 2.6 2,103 5.1
State and local taxes, net of
Federal income tax benefit 5,732 5.4 3,860 5.6 979 2.3
Valuation allowance for
foreign losses 682 0.6 604 0.9 828 2.0
Foreign taxes 480 0.4 350 0.5 413 1.0
DaimlerChrysler separation
adjustments - - - - 4,314 10.4
Other 913 0.9 528 0.7 276 0.7
-------- ----- -------- ----- -------- -----
$ 46,974 44.1 % $ 31,229 45.3 % $ 23,427 56.5 %
======== ===== ======== ===== ======== =====
13. CONCENTRATION OF CREDIT RISK AND FAIR VALUE INFORMATION
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of restricted cash and
investments and trade receivables. The Company limits its exposure on
restricted cash and investments by investing in highly rated funds.
Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's
customer base, and their dispersion across different businesses and
geographic areas.
The following estimated fair values of financial instruments
have been determined by the Company using available market information
and valuation methodologies.
Cash and Cash Equivalents, Restricted Cash and Investments,
Receivables, Accounts Payable, Accrued Liabilities and Public Liability
and Property Damage - The carrying amounts of these items are a
reasonable estimate of their fair value.
Debt and Other Obligations - The fair value of floating-rate
debt approximates the carrying value as these instruments are at current
market interest rates. At December 31, 1999, the fair value of the asset
backed notes was less than the carrying value by approximately
$35,636,000.
Letter of Credit and Guaranteed Obligations - The estimated
fair value of these items was $196,000 at both December 31, 1999 and
1998.
57
14. COMMITMENTS AND CONTINGENCIES
Concessions and Operating Leases
The Company has certain concession agreements with airports and
hotels throughout the United States and Canada. Typically, these
agreements provide airport terminal counter or hotel space in return for
a minimum rent. In many cases, the Company's subsidiaries are also
obligated to pay insurance and maintenance costs and additional rents
generally based on revenues earned at the location. Certain of the
airport locations are operated by franchisees who are obligated to make
the required rent and concession fee payments under the terms of their
franchise arrangements with the Company's subsidiaries.
The Company's subsidiaries operate from various leased premises
under operating leases with terms up to 25 years. Some of the leases
contain renewal options.
Expenses incurred under operating leases and concessions were as
follows:
Year Ended December 31,
---------------------------------------
1999 1998 1997
(In Thousands)
Rent $20,833 $17,530 $17,507
Concession expenses:
Minimum fees 29,627 20,832 22,447
Contingent fees 25,628 27,784 23,754
------- ------- -------
76,088 66,146 63,708
Less sublease rental income (2,408) (2,836) (2,333)
------- ------- -------
Total $73,680 $63,310 $61,375
======= ======= =======
Future minimum rentals and fees under noncancelable operating
leases, and the Company's obligation for minimum airport concession fees
at December 31, 1999 are presented in the following table. Concession
fees-franchisee locations presented are required to be paid by
franchisees under terms of sublease agreements.
Concession Fees
---------------------------
Company-
Owned Franchisee Operating
Stores Locations Leases Total
(In Thousands)
2000 $ 25,434 $ 2,216 $ 18,206 $ 45,856
2001 21,930 2,375 14,617 38,922
2002 19,701 1,954 12,243 33,898
2003 13,029 1,825 9,969 24,823
2004 9,755 1,827 7,296 18,878
Thereafter 50,363 28,025 44,844 123,232
--------- -------- --------- ---------
140,212 38,222 107,175 285,609
Less sublease rental income - - (5,683) (5,683)
--------- -------- --------- ---------
$ 140,212 $ 38,222 $ 101,492 $ 279,926
========= ======== ========= =========
58
Public Liability and Property Damage
During 1999, Dollar and Thrifty obtained first dollar coverage
for their auto liability programs from insurance carriers. Prior to that
time, the Company was self-insured or had policy deductibles to certain
limits with respect to liabilities for claims arising as a result of
personal injury and property damage. The accrual for public liability and
property damage includes amounts for incurred and incurred but not
reported losses. Such liabilities are necessarily based on actuarially
determined estimates and management believes that the amounts accrued are
adequate. At December 31, 1999 and 1998, these amounts have been
discounted at 6.3% and 4.6%, respectively, (assumed risk free rate),
based upon the actuarially determined estimated timing of payments to be
made in future years. Discounting resulted in reducing the accrual for
public liability and property damage by $6,434,000 and $6,862,000 at
December 31, 1999 and 1998, respectively. Estimated payments of public
liability and property damage as of December 31, 1999 are as follows (in
thousands):
2000 $31,404
2001 12,249
2002 7,983
2003 4,761
2004 3,245
Thereafter 5,575
--------
Aggregate undiscounted public liability and property damage 65,217
Effect of discounting (6,434)
--------
$58,783
========
Contingencies
Various claims and legal proceedings have been asserted or
instituted against the Company, including some purporting to be class
actions, and some which demand large monetary damages or other relief
which could result in significant expenditures. Litigation is subject to
many uncertainties, and the outcome of individual matters is not
predictable with assurance. The Company is also subject to potential
liability related to environmental matters. The Company establishes
reserves for litigation and environmental matters when the loss is
probable and reasonably estimable. It is reasonably possible that the
final resolution of some of these matters may require the Company to make
expenditures, in excess of established reserves, over an extended period
of time and in a range of amounts that cannot be reasonably estimated.
The term "reasonably possible" is used herein to mean that the chance of
a future transaction or event occurring is more than remote but less than
likely. Although the final resolution of any such matters could have a
material effect on the Company's consolidated operating results for the
particular reporting period in which an adjustment of the estimated
liability is recorded, the Company believes that any resulting liability
should not materially affect its consolidated financial position.
Other
The Company is party to a data processing services agreement
which requires monthly payments totaling $4,308,000 (2000), $4,420,000
(2001), $4,535,000 (2002) and $564,000 (2003). Additionally, the Company
has a telecommunications contract which requires annual payments of
$5,100,000 through 2004.
59
In addition to the letters of credit described in Note 8 to
the consolidated financial statements, the Company had letter of credit
and guarantee obligations totaling $1,964,000 and $1,958,000, at December
31, 1999 and 1998, respectively.
At December 31, 1999, the Company had outstanding vehicle
purchase commitments of approximately $729,634,000.
15. 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. Dollar operates
company-owned stores located at major airports and derives the majority
of its revenues by providing rental vehicles and services directly to
rental customers. Thrifty operates primarily through franchisees serving
both the airport and local markets, and it derives the majority of its
revenues from franchising fees and services including vehicle leasing.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates segment performance based on profit and loss from operations
before income taxes.
Included in the consolidated financial statements are the
following amounts relating to geographic locations:
Years Ended December 31,
---------------------------------------
1999 1998 1997
(In Thousands)
Revenues:
United States $953,509 $857,330 $801,088
Other foreign countries 45,243 41,636 42,700
-------- -------- --------
$998,752 $898,966 $843,788
======== ======== ========
Long-lived assets:
United States $244,673 $243,854 $237,237
Other foreign countries 2,895 1,457 1,173
-------- -------- --------
$247,568 $245,311 $238,410
======== ======== ========
Revenues are attributed to geographic regions based on the
location of the transaction. Long-lived assets include property and
equipment and intangible assets.
Information by industry segment is set forth below:
Year Ended
December 31, 1999 Dollar Thrifty Other Consolidated
------------------------------------------------------------------------------------------------------
(In Thousands)
Revenues from external customers $ 735,011 $262,978 $ 763 $ 998,752
Interest expense, net (a) 59,166 35,325 623 95,114
Depreciation and amortization, net 206,048 114,844 1,489 322,381
Income before income taxes 79,020 27,540 - 106,560
Segment assets $1,270,620 $667,161 $233,872 $2,171,653
Expenditures for segment assets $1,541,803 $886,500 $ 702 $2,429,005
60
Year Ended
December 31, 1998 Dollar Thrifty Other Consolidated
------------------------------------------------------------------------------------------------------
(In Thousands)
Revenues from external customers $ 660,122 $237,919 $ 925 $ 898,966
Interest expense, net (a) 54,767 33,195 764 88,726
Depreciation and amortization, net 193,366 111,171 1,521 306,058
Income before income taxes 50,055 18,839 - 68,894
Segment assets $1,137,405 $628,409 $ 99,486 $1,865,300
Expenditures for segment assets $1,294,845 $812,236 $ 2,285 $2,109,366
Year Ended
December 31, 1997 Dollar Thrifty Other Consolidated
------------------------------------------------------------------------------------------------------
(In Thousands)
Revenues from external customers $ 616,282 $226,343 $ 1,163 $ 843,788
Interest expense, net (a) 56,902 29,619 1,331 87,852
Depreciation and amortization, net 182,004 110,948 1,359 294,311
Income before income taxes 34,721 5,246 1,501 41,468
Segment assets $1,107,583 $600,864 $233,763 $1,942,210
Expenditures for segment assets $1,090,546 $767,995 $ 648 $1,859,189
(a) Management primarily uses net interest, not the gross interest
revenue and expense amounts, in assessing segment performance.
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of the quarterly operating results during 1999 and 1998 follows:
Income Basic Diluted
Operating Before Earnings Earnings
Revenues Income Income Taxes Net Income Per Share Per Share
(In Thousands Except Per Share Amounts)
1999
First quarter $ 211,551 $ 32,000 $ 10,609 $ 5,397 $ 0.22 $ 0.22
Second quarter 259,350 56,568 30,494 16,988 0.70 0.69
Third quarter 299,356 80,967 52,036 30,210 1.25 1.23
Fourth quarter 228,495 37,981 13,421 6,991 0.29 0.28
--------- --------- --------- -------- ------ ------
Total year $ 998,752 $ 207,516 $ 106,560 $ 59,586 $ 2.47 $ 2.43
========= ========= ========= ======== ====== ======
1998
First quarter $ 191,332 $ 22,913 $ 2,917 $ 822 $ 0.03 $ 0.03
Second quarter 227,177 41,132 17,114 9,213 0.38 0.38
Third quarter 274,701 69,305 42,020 24,151 1.00 1.00
Fourth quarter 205,756 29,687 6,843 3,479 0.14 0.14
--------- --------- --------- -------- ------ ------
Total year $ 898,966 $ 163,037 $ 68,894 $ 37,665 $ 1.56 $ 1.56
========= ========= ========= ======== ====== ======
Operating income in the table above represents pre-tax income
before interest and amortization of costs in excess of net assets
acquired.
61
17. SUBSEQUENT EVENTS
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.
******
62
SCHEDULE II
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------------------------------------
Balance at Additions Balance at
Beginning Charged to End of
of Year Income Deductions Year
(In Thousands)
1999
Allowance for doubtful accounts $ 14,910 $ 9,682 $ (6,824) $ 17,768
======== ======== ========= ========
Public liability and property damage $ 77,619 $ 4,710 $ (23,546) $ 58,783
======== ======== ========= ========
1998
Allowance for doubtful accounts $ 12,745 $ 6,891 $ (4,726) $ 14,910
======== ======== ========= ========
Public liability and property damage $ 75,687 $ 44,528 $ (42,596) $ 77,619
======== ======== ========= ========
1997
Allowance for doubtful accounts $ 16,622 $ 2,942 $ (6,819) $ 12,745
======== ======== ========= ========
Public liability and property damage $ 63,235 $ 51,708 $ (39,256) $ 75,687
======== ======== ========= ========
63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements on matters
related to accounting or financial disclosure during the fiscal years ended
December 31, 1999 and 1998.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information appearing under the captions
"Biographical Information Regarding Director Nominees and Named Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's definitive Proxy Statement which will be filed pursuant to Regulation
14A promulgated by the SEC not later than 120 days after the end of the
Company's fiscal year ended December 31, 1999, and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information appearing under the captions
"Meetings, Committees and Compensation of the Board of Directors -
Compensation," "Meetings, Committees and Compensation of the Board of Directors
- - Certain Understandings," and "Executive Compensation" in the Company's
definitive Proxy Statement which will be filed pursuant to Regulation 14A
promulgated by the SEC not later than 120 days after the end of the Company's
fiscal year ended December 31, 1999, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information appearing under the caption
"Security Ownership of Certain Beneficial Owners, Directors, Director Nominees
and Executive Officers" in the Company's definitive Proxy Statement which will
be filed pursuant to Regulation 14A promulgated by the SEC not later than 120
days after the end of the Company's fiscal year ended December 31, 1999, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information appearing under "Certain
Relationships and Related Transactions" in the Company's definitive Proxy
Statement which will be filed pursuant to Regulation 14A promulgated by the SEC
not later than 120 days after the end of the Company's fiscal year ended
December 31, 1999, and is incorporated herein by reference.
64
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report
(1) All Financial Statements. The response to this portion of Item 14
is submitted as a separate section herein under Part II, Item
8 - Financial Statements and Supplementary Data.
(2) Financial Statement Schedules. Schedule II - Valuation and
Qualifying Accounts - Years Ended December 31, 1999, 1998 and 1997
is set forth under Part II - Item 8 - Financial Statements and
Supplementary Data. All other schedules are omitted because they
are not applicable or the information is shown in the financial
statements or notes thereto.
(3) Index of Exhibits
Exhibit No. Description
----------- -----------
1.1 Form of U.S. Underwriting Agreement, filed as the same
numbered exhibit with the Company's Registration Statement
on Form S-1, as amended, Registration No. 333-39661, which
became effective December 16, 1997***
1.2 Form of Subscription Agreement, filed as the same numbered
exhibit with the Company's Registration Statement on Form
S-1, as amended, Registration No. 333-39661, which became
effective December 16, 1997***
3.1 Certificate of Incorporation of the Company, filed as the
same numbered exhibit with the Company's Registration
Statement on Form S-1, as amended, Registration No.
333-39661, which became effective December 16, 1997*
3.2 By-Laws of the Company, as amended, which became effective
July 22,1999, filed as the same numbered exhibit with the
Company's Form 10-Q for the quarterly period ended June 30,
1999, filed August 12, 1999*
4.1 Form of Certificate of Common Stock, filed as the same
numbered exhibit with the Company's Registration Statement
on Form S-1, as amended, Registration No. 333-39661, which
became effective December 16, 1997*
4.2 Base Indenture dated as of December 13, 1995 between Thrifty
Car Rental Finance Corporation and Bankers Trust Company,
filed as the same numbered exhibit with the Company's
Registration Statement on Form S-1, as amended, Registration
No. 333-39661, which became effective December 16, 1997*
4.3 Series 1995-1 Supplement to Base Indenture dated as of
December 13, 1995 between Thrifty Car Rental Finance
Corporation and Bankers Trust Company, filed as the same
numbered exhibit with the Company's Registration Statement on
Form S-1, as amended, Registration No. 333-39661, which became
effective December 16, 1997*
65
4.4 Master Motor Vehicle Lease and Servicing Agreement dated as of
December 13, 1995 between Thrifty Car Rental Finance
Corporation and Thrifty, filed as the same numbered exhibit
with the Company's Registration Statement on Form S-1, as
amended, Registration No. 333-39661, which became effective
December 16, 1997*
4.5 Master Collateral Agency Agreement dated as of December 13,
1995 between Thrifty Car Rental Finance Corporation and
Bankers Trust Company, filed as the same numbered exhibit with
the Company's Registration Statement on Form S-1, as amended,
Registration No. 333-39661, which became effective December
16, 1997*
4.6 Form of Revolving Credit Agreement among the Company, Dollar,
Thrifty and the Institutions named therein, filed as the same
numbered exhibit with the Company's Registration Statement on
Form S-1, as amended, Registration No. 333-39661, which became
effective December 16, 1997*
4.7 Form of Series 1997-1 Supplement to Base Indenture between
Rental Car Finance Corp. and Bankers Trust Company, filed as
the same numbered exhibit with the Company's Registration
Statement on Form S-1, as amended, Registration No.
333-39661, which became effective December 16, 1997*
4.8 Form of Master Motor Vehicle Lease and Servicing Agreement
among the Company, Dollar, Thrifty and Rental Car Finance
Corp., filed as the same numbered exhibit with the Company's
Registration Statement on Form S-1, as amended, Registration
No. 333-39661, which became effective December 16, 1997*
4.9 Commitment Letter dated November 19, 1997, among Credit Suisse
First Boston, The Chase Manhattan Bank, Chase Securities Inc.,
Dollar, Thrifty and the Company regarding a $230,000,000
Revolving Credit Facility and a $545,000,000 Commercial Paper
Liquidity Facility and related Term Sheet, filed as the same
numbered exhibit with the Company's Registration Statement on
Form S-1, as amended, Registration No. 333-39661, which became
effective December 16, 1997*
4.10 Amended and Restated Master Collateral Agency Agreement dated
as of December 23, 1997 among the Company, Rental Car Finance
Corp., Thrifty, Dollar and Bankers Trust Company, filed as the
same numbered exhibit with the Company's Form 8-K, filed March
16, 1998*
4.11 Chrysler Support Letter of Credit and Reimbursement Agreement
dated as of December 23, 1997 among DaimlerChrysler, Dollar,
Thrifty, the Company, TRAC Team, Inc. and DTAG Services, Inc.,
filed as the same numbered exhibit with the Company's Form
8-K, filed March 16, 1998*
4.12 Series 1998-1 Supplement to Base Indenture dated as of March
4, 1998 between Rental Car Finance Corp. and Bankers Trust
Company, filed as the same numbered exhibit with the Company's
Form 8-K, filed March 16, 1998*
66
4.13 Master Motor Vehicle Lease and Servicing Agreement dated as
of March 4, 1998 among he Company, Dollar, Thrifty and
Rental Car Finance Corp., filed as the same numbered exhibit
with the Company's Form 8-K, filed March 16, 1998*
4.14 Note Purchase Agreement dated as of March 4, 1998 among
Rental Car Finance Corp., Dollar Thrifty Funding Corp. and
Credit Suisse First Boston, filed as the same numbered
exhibit with the Company's Form 8-K, filed March 16, 1998*
4.15 Liquidity Agreement dated as of March 4, 1998 among Dollar
Thrifty Funding Corp., Certain Financial Institutions and
Credit Suisse First Boston, filed as the same numbered exhibit
with the Company's Form 8-K, filed March 16, 1998*
4.16 Depositary Agreement dated as of March 4, 1998 between Dollar
Thrifty Funding Corp. and Bankers Trust Company, filed as the
same numbered exhibit with the Company's Form 8-K, filed March
16, 1998*
4.17 Collateral Agreement dated as of March 4, 1998 among Dollar
Thrifty Funding Corp., Credit Suisse First Boston Corporation
and Bankers Trust Company, filed as the same numbered exhibit
with the Company's Form 8-K, filed March 16, 1998*
4.18 Dealer Agreement dated as of March 4, 1998 among Dollar
Thrifty Funding Corp., the Company, Credit Suisse First
Boston Corporation and Chase Securities Inc., filed as the
same numbered exhibit with the Company's Form 8-K, filed
March 16, 1998*
4.19 Rights Agreement (including a Form of Certificate of
Designation of Series A Junior Participating Preferred Stock
as Exhibit A thereto, a Form of Right Certificate as Exhibit B
thereto and a Summary of Rights to Purchase Preferred Stock as
Exhibit C thereto) dated as of July 23, 1998 between the
Company and Harris Trust and Savings Bank, as Rights Agent,
filed as the same numbered exhibit with the Company's Form
8-K, filed July 24, 1998*
4.20 Supplement No. 2 to Series 1998-1 Supplement to Base
Indenture dated March 4, 1999, among Rental Car Finance
Corp., Dollar, Thrifty, the Company, Bankers Trust Company
and Credit Suisse First Boston, filed as the same numbered
exhibit with the Company's Form 8-K, filed May 18, 1999*
4.21 Extension of Scheduled Liquidity Commitment Termination Date
dated March 4, 1999, among Dollar Thrifty Funding Corp.,
various Liquidity Lenders and Credit Suisse First Boston,
filed as the same numbered exhibit with the Company's Form
8-K, filed May 18, 1999*
4.22 Series 1999-1 Supplement to Base Indenture dated as of April
29, 1999 between Rental Car Finance Corp. and Bankers Trust
Company, filed as the same numbered exhibit with the
Company's Form 8-K, filed May 18, 1999*
67
4.23 Note Purchase Agreement dated as of April 29, 1999 among
Rental Car Finance Corp., the Company, Credit Suisse First
Boston Corporation and Chase Securities Inc., filed as the
same numbered exhibit with the Company's Form 8-K, filed May
18, 1999*
4.24 Enhancement Letter of Credit Application and Agreement dated
April 29, 1999, among Dollar, Thrifty, the Company, Rental
Car Finance Corp. and Credit Suisse First Boston, filed as
the same numbered exhibit with the Company's Form 8-K, filed
May 18, 1999*
5 Opinion of Debevoise & Plimpton regarding legality of the
Common Stock, filed as the same numbered exhibit with the
Company's Registration Statement on Form S-1, as amended,
Registration No. 333-39661, which became effective December
16, 1997***
5.1 Opinion of Hall, Estill, Hardwick, Gable, Golden & Nelson,
P.C. regarding the legality of the Common Stock being
registered, filed as the same numbered exhibit with the
Company's Form S-8, Registration No. 333-79603, filed May
28, 1999***
10.1 Vehicle Supply Agreement between DaimlerChrysler and Dollar,
filed as the same numbered exhibit with the Company's
Registration Statement on Form S-1, as amended, Registration
No. 333-39661, which became effective December 16, 1997*
10.2 Amended and Restated Vehicle Supply Agreement between
DaimlerChrysler and Thrifty, filed as the same numbered
exhibit with the Company's Registration Statement on Form S-1,
as amended, Registration No. 333-39661, which became effective
December 16, 1997*
10.3 Employment Continuation Agreement between the Company and
Joseph E. Cappy dated September 29, 1998, filed as the same
numbered exhibit with the Company's Form 10-Q for the
quarterly period ended September 30, 1998, filed November 16,
1998*
10.4 Employment Continuation Plan for Key Employees of Dollar
Thrifty Automotive Group, Inc., which became effective
September 29, 1998, filed as the same numbered exhibit with
the Company's Form 10-Q for the quarterly period ended
September 30, 1998, filed November 16, 1998*
10.5 Dollar Thrifty Automotive Group, Inc. Retirement Plan, dated
as of December 5, 1998, by and among the Company, Thrifty,
Dollar and Bank of Oklahoma, N.A., filed as the same
numbered exhibit with the Company's Form 10-K for the fiscal
year ended December 31, 1998, filed March 19, 1999*
10.6 Dollar Thrifty Automotive Group, Inc. Retirement Savings Plan,
as adopted by the Company pursuant to the Adoption Agreement
(Exhibit 10.7), filed as the same numbered exhibit with the
Company's Form S-8, Registration No. 333-89189, filed October
15, 1999*
10.7 Adoption Agreement #005 Nonstandardized Code Section 401(k)
Profit Sharing Plan of Dollar Thrifty Automotive Group, as
amended, filed as the same numbered exhibit with the
Company's Form S-8, Registration No. 333-89189, filed
October 15, 1999*
68
10.8 Pentastar Transportation Group, Inc. Deferred Compensation
Plan, filed as the same numbered exhibit with the Company's
Registration Statement on Form S-1, as amended, Registration
No. 333-39661, which became effective December 16, 1997*
10.9 Pentastar Transportation Group, Inc. Executive Retention
Plan, filed as the same numbered exhibit with the Company's
Registration Statement on Form S-1, as amended, Registration
No. 333-39661, which became effective December 16, 1997*
10.10 Dollar Thrifty Automotive Group, Inc. Long-Term Incentive
Plan, filed as the same numbered exhibit with the Company's
Registration Statement on Form S-1, as amended, Registration
No. 333-39661, which became effective December 16, 1997*
10.11 Tax Sharing and Disaffiliation Agreement between
DaimlerChrysler and Dollar Thrifty Automotive Group, Inc.,
filed as the same numbered exhibit with the Company's
Registration Statement on Form S-1, as amended, Registration
No. 333-39661, which became effective December 16, 1997*
10.12 Form of Indemnification Agreement between the Company and
DaimlerChrysler, filed as the same numbered exhibit with the
Company's Registration Statement on Form S-1, as amended,
Registration No. 333-39661, which became effective December
16, 1997*
10.13 Amendment to Long-Term Incentive Plan dated as of September
29, 1998, filed as the same numbered exhibit with the
Company's Form S-8, Registration No. 333-79603, filed May 28,
1999*
15.1 Letter from Deloitte & Touche LLP regarding interim
financial information, filed as the same numbered exhibit
with the Company's Form S-8, Registration No. 333-79603,
filed May 28, 1999***
15.2 Letter from Deloitte & Touche LLP regarding interim
financial information, filed as the same numbered exhibit
with the Company's Form S-8, Registration No. 333-89189,
filed October 15, 1999***
21 Subsidiaries of the Company**
23.2 Consent of Debevoise & Plimpton (included in Exhibit 5), filed
as the same numbered exhibit with the Company's Registration
Statement on Form S-1, as amended, Registration No. 333-39661,
which became effective December 16, 1997*
23.3 Consent of Donovan Leisure Newton & Irvine LLP, filed as the
same numbered exhibit with the Company's Registration
Statement on Form S-1, as amended, Registration No. 333-39661,
which became effective December 16, 1997*
69
23.4 Consent of Deloitte & Touche LLP, filed as the same numbered
exhibit with the Company's Form S-8, Registration No.
333-79603, filed May 28, 1999***
23.5 Consent of Hall, Estill, Hardwick, Gable, Golden & Nelson,
P.C. (included in Exhibit 5.1), filed as the same numbered
exhibit with the Company's Form S-8, Registration No.
333-79603, filed May 28, 1999***
23.6 Consent of Deloitte & Touche LLP, filed as the same numbered
exhibit with the Company's Form S-8, Registration No.
333-89189, filed October 15, 1999***
23.7 Consent of Deloitte & Touche LLP, regarding Forms S-8,
Registration No. 333-79603 and Registration No. 333-89189**
27.1 Financial Data Schedule (EDGAR version only)**
- ----------
* Incorporated by reference
** Filed herewith
*** Not incorporated by reference in this report
(b) No report on Form 8-K was filed by the Company during or applicable to the
quarter ended December 31, 1999.
(c) Filed Exhibits
--------------
The response to this item is submitted as a separate section of this report.
70
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 22, 2000 DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
By: /s/ JOSEPH E. CAPPY
----------------------
Name: Joseph E. Cappy
Title:President and Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ JOSEPH E. CAPPY Chairman of the Board March 22, 2000
------------------------ Chief Executive Officer
Joseph E. Cappy President and Director
/s/ STEVEN B. HILDEBRAND Vice President March 22, 2000
------------------------ Principal Financial Officer
Steven B. Hildebrand Principal Accounting Officer
/s/ DONALD M. HIMELFARB Executive Vice President and Director March 22, 2000
------------------------ President of Thrifty, Inc.
Donald M. Himelfarb
/s/ GARY L. PAXTON Executive Vice President and Director March 22, 2000
------------------------ President of Dollar Rent A Car Systems, Inc.
Gary L. Paxton
/s/ THOMAS P. CAPO Director March 22, 2000
------------------------
Thomas P. Capo
/s/ EDWARD J. HOGAN Director March 22, 2000
------------------------
Edward J. Hogan
/s/ EDWARD C. LUMLEY Director March 22, 2000
------------------------
Edward C. Lumley
/s/ JOHN C. POPE Director March 22, 2000
------------------------
John C. Pope
/s/ JOHN P. TIERNEY Director March 22, 2000
------------------------
John P. Tierney
/s/ EDWARD L. WAX Director March 22, 2000
------------------------
Edward L. Wax
71
INDEX TO EXHIBITS
-----------------
Exhibit Number Description
- -------------- -----------
21 Subsidiaries of the Company
23.7 Consent of Deloitte & Touche LLP regarding Forms S-8,
Registration No. 333-79603 and Registration No. 333-89189
27.1 Financial Data Schedule (EDGAR version only)