Back to GetFilings.com
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
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, 2000
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
--------------------
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: [X]
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant as of February 28, 2001 was
$237,337,030.
The number of shares outstanding of the registrant's Common Stock as of
February 28, 2001 was 24,205,422.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 24, 2001 are incorporated by reference in Part
III.
================================================================================
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
FORM 10-K
CONTENTS
PART I
ITEM 1. BUSINESS.............................................. 4
ITEM 2. PROPERTIES............................................ 23
ITEM 3. LEGAL PROCEEDINGS..................................... 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS... 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS....................... 24
ITEM 6. SELECTED FINANCIAL DATA............................... 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................... 27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK..................................... 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........... 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE................ 65
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.... 65
ITEM 11. EXECUTIVE COMPENSATION................................ 65
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT................................. 65
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........ 65
2
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K........................................ 66
SIGNATURES................................................................... 74
INDEX TO EXHIBITS............................................................ 75
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: price and product competition, economic and
competitive conditions in markets and countries where our customers reside and
where our companies and their franchisees operate; changes in capital
availability or cost; costs and other terms related to the acquisition and
disposition of automobiles and conducting business; and certain regulatory and
environmental matters. Should one or more of these risks or uncertainties, among
others, materialize, actual results could vary materially from those estimated,
anticipated or projected. Dollar Thrifty Automotive Group, Inc. undertakes no
obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to future
operating results over time.
3
PART I
------
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, including
foreign tourists, and to small businesses and independent business travelers. As
of December 31, 2000, Dollar and Thrifty had 947 locations in the United States
and Canada of which 182 were company-owned stores and 765 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"). For the year ended December 31, 2000,
Dollar's gross revenues comprised approximately 76% of the Group's revenues with
Thrifty contributing the remaining 24% of revenues.
The businesses of Dollar and Thrifty have separate and different
approaches to the vehicle rental market. In the United States, Dollar's main
focus is operating company-owned stores located in major airports, and it
derives substantial revenues from leisure and tour 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,
24,123,105 shares of Common Stock were sold at an initial price of $20.50 per
share. 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
4,123,105 shares were sold by the Company.
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, including issues in
1999 and 2001, a variable funding note issue in 2000, and proceeds from the
Commercial Paper Program are each 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."
4
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.
The rental car industry has experienced significant changes in
ownership in the past several years. In the mid-1990s, most major rental car
companies were owned by domestic automobile manufacturers. Ford Motor Company
("Ford") owned both Hertz and Budget, General Motors Corporation owned National
and DaimlerChrysler owned both Dollar and Thrifty. Since that time many of these
companies have become publicly owned. ANC Rental Corporation (spun out of
AutoNation, Inc. in 2000), which owns both Alamo and National, and Budget Group,
Inc. are both publicly owned. Cendant Corporation (formerly HFS, Inc.) purchased
Avis in 1996 and subsequently sold 80% to the public in 1997. In March 2001,
Cendant re-acquired all public ownership of Avis and operates it as a
subsidiary. Ford sold a minority interest in Hertz to the public in 1997 and has
recently reached an agreement to buy back the public ownership.
The potential for a slow down in the economy also exists in 2001,
possibly reducing the overall demand for rental cars and could compress rental
rates, which could materially affect the operating results of the Company and
its franchisees.
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 2000, the Group's average monthly fleet size ranged from a low of
approximately 80,000 vehicles in the first quarter to a high of approximately
118,000 vehicles in the third quarter.
DOLLAR
GENERAL
Dollar's 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 the
right to operate as a part of the Dollar system in the United States and abroad.
All of its Canadian and international operations are franchised.
5
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, 2000, Dollar's vehicle rental system included 282
locations in the United States and Canada, consisting of 130 company-owned
stores and 152 that were operated by franchisees. Dollar's total revenue was
$824 million in 2000, of which $775 million (94%) was generated by company-owned
stores and $49 million (6%) 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 over 80% of the 50 largest U.S. airport markets and
franchisees in the remaining markets. When opportunities arise, Dollar may
acquire operations from franchisees and convert them to company-owned stores.
Dollar converted four franchised operations to company-owned operations in 1996,
three in 1997, two in 1998 and three in 2000. In March 2000, Dollar acquired the
franchised operations of its largest Texas licensee, which included operations
in San Antonio, Corpus Christi, Midland/Odessa, and other smaller markets. In
September 2000, Dollar also acquired the franchised operations of its Atlanta
and Memphis licensees. Dollar generally has rights of first refusal on the sale
of a franchised operation. Consistent with Dollar's strategy of operating
corporately in the top 50 airports and other key markets, company-owned stores
located in the smaller markets may be franchised in order to grow Dollar's
franchisee 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 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 26% of Dollar's rental revenues in 2000. 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 $200 million in 2000.
Dollar is the exclusive U.S. vehicle rental company for four of its
five largest tour operator accounts. Its arrangement with the other tour
operator account is non-exclusive. The agreements for these five accounts expire
from December 15, 2001 to December 31, 2009. No single tour operator account
generated in excess of 5% of the Group's 2000 revenues.
As of December 31, 2000, Dollar had vehicle rental concessions for
company-owned stores at 68 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.
6
SERVICES AND PRODUCTS PROVIDED TO RENTAL CUSTOMERS
WORLDWIDE RESERVATIONS SYSTEM. Dollar has continuously staffed
reservation facilities at its headquarters in Tulsa, Oklahoma and at its
facility in Tahlequah, Oklahoma. Dollar's reservation facilities are linked to
all major airline reservation systems and through such systems to travel
agencies in the United States, Canada and abroad. Dollar's total reservations in
2000 grew by 18% with most of the growth originating from the Internet.
Reservations through Dollar's Internet web site, (dollar.com), increased 158% in
2000, representing 16% of Dollar's non-tour reservations booked for the year. An
additional 13% of Dollar's reservations were booked through other Internet
travel sites.
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 rental counter automation system,
FASTLANE(R), and began installing it in 1998 in its company-owned stores. 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.
In 1997, Dollar 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.
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, responds to customer inquiries 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 with additional
training centers in Honolulu and Dallas scheduled to open in 2001.
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.
7
FRANCHISING
UNITED STATES AND CANADA
Approximately 6% of Dollar's 2000 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 2000 accounted for approximately 3% of Dollar's total
revenue. As of December 31, 2000, Dollar had franchised operations located in 28
countries. In Canada, Dollar's master franchisee directly operates or
subfranchises 23 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 2000 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 (8% in 1999 and 7% in 1998) 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, centralized corporate account and
tour billing and travel agent commission payments. Dollar franchisees 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 2000 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.
Through its alliance with Sixt, Dollar offers service in more than 25 countries
covering Europe, the Middle East and Africa.
The number of foreign locations or Dollar system-wide locations
disclosed in this report does not include the Sixt locations.
8
MARKETING
Dollar's marketing strategy is to position Dollar as the value-priced,
on-airport car rental company to cost conscious leisure and business travelers.
Dollar utilizes a mix of national and local advertising, promotions and
strategic marketing efforts to promote this strategy.
NATIONAL ADVERTISING, LOCAL ADVERTISING AND PROMOTION
Dollar's national advertising programs utilize a media mix of both
print and television with an emphasis on the popular leisure destinations of
Florida, California, Hawaii, Nevada and Arizona. Dollar communicates its
value-priced message to consumers via frequent advertisements in USA TODAY and
other major U.S. metropolitan newspapers. Dollar also advertises on U.S.
broadcast and cable television networks, promoting its low rates and on-airport
convenience. Dollar spends approximately 4% of its annual total U.S. system-wide
revenues on marketing, advertising, public relations and sales promotions.
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
Strategic marketing partnerships and frequent flier programs have been
established with many airline partners and travel agencies. Approximately 31% of
Dollar's non-tour reservations are booked through travel agencies utilizing the
major 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 2000, Dollar received approximately 29% of its reservations
through its dollar.com web site and other Internet travel sites. Dollar
continues to invest in its dollar.com web site and plans to continually enhance
the site to best meet its customers' travel needs. 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
Internet Car Rentals Scorecard four consecutive times in 1999 and 2000.
Additionally, in recognition of the shift in travel distribution patterns,
Dollar has placed significant emphasis on developing relationships with Internet
travel sites. Dollar maintains preferred supplier arrangements with two of the
leading Internet travel sites, Expedia and Travelocity.
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.
9
SUMMARY OPERATING DATA OF DOLLAR
YEARS ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
(in thousands)
Revenues:
U.S. Company-owned stores $ 774,530 $ 682,769 $ 605,187
U.S. and Canada franchisees 45,158 47,848 50,011
International franchisees 1,624 2,547 3,100
Other 2,542 1,847 1,824
---------- ---------- ----------
Total revenues $ 823,854 $ 735,011 $ 660,122
========== ========== ==========
AS OF DECEMBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Rental Locations:
U.S. Company-owned stores 130 116 114
U.S. and Canada franchisee locations 152 173 154
Franchisees:
U.S. and Canada 66 77 73
International 38 40 50
10
THRIFTY
GENERAL
Thrifty's focus is on franchising and franchise support services.
Thrifty operated company-owned stores in nine cities in the United States and
Canada as of December 31, 2000. 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 been moving to in-terminal locations. During 2000, Thrifty
moved to in-terminal locations at thirteen airports including Phoenix, Fort
Lauderdale and Dallas-Fort Worth. These additions bring Thrifty's total
in-terminal locations to 87, which is over half of the airports serviced by
Thrifty in the U.S.
As of December 31, 2000, Thrifty's vehicle rental system included 665
rental locations in the United States and Canada, divided between 613 franchisee
locations and 52 company-owned stores. The Thrifty system also included 629
locations abroad, all of which were franchisee locations. Thrifty's total
corporate revenue was $259 million in 2000, of which $218 million (84%) was
revenue from franchisees in the form of fleet leasing fees, system fees and
other service and product fees and $41 million (16%) 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 7% per year, with an average of 13 terminations and
21 additions (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.
11
For 2000, 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 2000, fleet leasing accounted for approximately 67%
of Thrifty's total revenue. Thrifty's 2001 strategy is to offer attractive lease
rates that Thrifty believes will improve franchisee health and support
additional growth in the fleet leasing program. See "Fleet Acquisition and
Management -- Fleet Leasing Programs."
TRAINING AND SUPPORT. Thrifty's franchisees are required to attend
initial orientation and receive 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 express rental
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 RESERVATIONS 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. Thrifty's reservation facilities are linked to all of the
major airline reservation systems and through such systems to travel agencies in
the United States, Canada and abroad. Thrifty franchisee payments for
reservations made through these centers accounted for approximately 5% of
Thrifty's 2000 total revenues. Thrifty's total reservations in 2000 grew by 9%
with most of the growth originating from the Internet. Reservations through
Thrifty's Internet web site (thrifty.com) increased in 2000 by 151% representing
8% of Thrifty's reservations booked for the year. An additional 10% of Thrifty's
reservations were booked through other Internet travel sites.
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. Thrifty's fleet and reservation
processing systems are housed in a secure underground SABRE facility in Oklahoma
designed to withstand disasters.
12
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, 2000, Thrifty master franchisees operated 629
vehicle rental locations in 57 countries and territories outside the United
States and Canada. Regions with Thrifty franchisees include Latin America,
Europe, the Middle East, Africa 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 approximately 1% of 2000 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
re-franchised. During 2000, Thrifty commenced operating its South Florida
locations, which were previously operated by an independent franchisee. As of
December 31, 2000, including Tulsa, Oklahoma, Thrifty operated company-owned
stores in four cities in the United States. In February 2001, Thrifty
re-franchised the three South Florida cities; however, it intends to continue to
operate its Tulsa, Oklahoma locations. Thrifty also began operating its Oakland
and Dallas-Fort Worth locations, and believes additional franchisee financial
failures could result during 2001. 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 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.
13
At December 31, 2000, Thrifty Car Sales had 35 franchise locations in
operation with an additional 17 that have signed dealer agreements. An
additional 21 dealers have been approved and are pending final documentation. By
the end of 2001, Thrifty expects to double the number of locations in its
Thrifty Car Sales network.
CANADIAN OPERATIONS
Thrifty operates in Canada through its wholly owned subsidiary, Thrifty
Canada, Ltd. ("TCL"). TCL operates company-owned stores in five of the eight
largest airport vehicle rental markets in Canada and encourages franchisees to
operate in the remaining markets. As of December 31, 2000, the TCL system
included 136 vehicle rental locations, of which 93 were operated by franchisees
and 43 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 objective is to position the Thrifty brand as an
industry leader in delivering value for vehicle rental to value-conscious
consumers. In the United States it implements this strategy primarily through
national advertising, strategic marketing partnerships and enhancing
distribution channels. In addition, marketing assistance is provided to U.S.
franchisees in local advertising, promotion and sales.
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. Thrifty has national marketing partnerships with major U.S.
airlines frequent flier programs. Its newest partners include Delta, U.S.
Airways and Air Canada.
14
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 2000 model year,
franchisees and company-owned stores earned an aggregate allowance of
approximately $5.9 million.
Thrifty 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
Thrifty. These marks are important for customer awareness and selection of
Thrifty for vehicle rental.
STRATEGIC MARKETING EFFORTS
During 2000, the volume of reservations received through its
thrifty.com web site and other Internet travel sites continued to grow rapidly.
Thrifty continues to invest in its thrifty.com web site and recently contracted
with Mapquest to provide mapping and direction services on thrifty.com.
Thrifty enjoys a strong relationship with the travel agency community,
which is highlighted by its longstanding support of ASTA (American Society of
Travel Agents) and through its preferred supplier arrangements. 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.
In January 2001, Thrifty became the exclusive car rental partner in
Carlson Wagonlit's Gold Points Rewards Program, a customer loyalty program in
the U.S. and Canada with more than 6 million cardholders and partners that
include Radisson Hotels & Resorts, MCI WorldCom, Country Inns & Suites by
Carlson, T.G.I.Friday's, Carlson Wagonlit Travel (Canada), Famous Players
Theatres and nearly 150 on-line partners like the Disney Store Online,
Hallmark.com and SharperImage.com.
15
SUMMARY OPERATING DATA OF THRIFTY
YEARS ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
(in thousands)
Revenues:
U.S. and Canada franchisees $ 215,340 $ 225,934 $ 200,505
U.S. and Canada company-owned stores 40,858 33,981 34,526
International franchisees 2,885 3,063 2,888
---------- ---------- ----------
Total revenues $ 259,083 $ 262,978 $ 237,919
========== ========== ==========
AS OF DECEMBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Rental Locations:
U.S. and Canada franchisee locations 613 651 609
U.S. and Canada company-owned stores 52 33 25
Franchisees:
U.S. and Canada 226 245 232
International 57 63 67
16
FLEET ACQUISITION AND MANAGEMENT
U.S. VEHICLE SUPPLY
For the 2000 model year, DaimlerChrysler vehicles represented
approximately 86% 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 2001
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 for which rental companies 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, except for Enterprise, 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 2000 model year, approximately 27% 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. 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. In June 2000, the Company entered into a new VSA with
DaimlerChrysler, which will enable the Group to acquire vehicles beginning with
the 2002 model year through the 2006 model year. 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 eight
months to 10 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, 2000, 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 2000,
Dollar and Thrifty disposed of 51% of their Non-Program Vehicles through direct
channels and 49% through auctions. 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 2000, approximately 26% and
64% 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 2000,
approximately 3% of Dollar's and 67% of Thrifty's (including Canada) total
revenue was derived from vehicle leasing programs. During 2000, a limited number
of larger franchisees acquired their vehicles directly from manufacturers.
Dollar and Thrifty each set their respective lease rates after
considering Program Vehicle depreciation rates, estimated Non-Program Vehicle
depreciation, interest costs, model mix, administrative costs and market
conditions. 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,
-------------------------------------
2000 1999 1998
---------- ---------- ----------
THRIFTY:
Average number of vehicles leased to franchisees 31,267 31,856 29,595
---------- ---------- ----------
Average number of vehicles in combined fleets of
franchisees 49,210 45,613 39,434
Average number of vehicles in combined fleets of
company-owned stores 720 483 865
---------- ---------- ----------
Total 49,930 46,096 40,299
========== ========== ==========
DOLLAR:
Average number of vehicles leased to franchisees 4,080 4,960 6,151
---------- ---------- ----------
Average number of vehicles in combined fleets of
franchisees 15,470 14,252 13,513
Average number of vehicles in combined fleets of
company-owned stores 61,858 56,065 50,673
---------- ---------- ----------
Total 77,328 70,317 64,186
========== ========== ==========
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 may 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 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, some of which have
greater financial resources than the Group. Dollar's principal competitors for
business and leisure travelers are Alamo, Avis, Budget, Hertz, National,
Enterprise 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, National and Enterprise.
Hertz, Enterprise, Avis and Alamo 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 stores have 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. For 2000 and most of 1999, the majority of the Company's operations
had first dollar coverage from insurance carriers, subject to certain policy
limits, for public liability and property damage claims. Prior to this insurance
coverage, 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, 2000, the Group's reserve for
public liability and property damage claims was approximately $35 million. The
Group's obligations to pay these losses and indemnify the insurance carriers are
collateralized by surety bonds. As of December 31, 2000, these surety bonds
totaled approximately $46.1 million.
The Group also maintains various surety bonds to secure performance
under airport concession agreements and other obligations. As of December 31,
2000, the total amount of these bonds was approximately $28.7 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 26 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 legislation created 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 11 and lease 98 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, 2000, the Group employed a total of approximately
6,200 full-time and part-time employees of whom approximately 4,900 were
employed by Dollar and 1,300 by Thrifty. Approximately 270 of the Group's
employees were subject to collective bargaining agreements as of December 31,
2000. 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 Tulsa 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, 2000,
the Group's company-owned operations were carried on at 182 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, 2000.
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 2000 and 1999, were as follows:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
2000
----
High $ 23.75 $ 21.00 $ 22.81 $ 20.81
Low $ 11.38 $ 14.88 $ 18.25 $ 14.25
1999
----
High $ 17.31 $ 23.94 $ 25.44 $ 24.06
Low $ 11.31 $ 16.56 $ 18.31 $ 16.88
The 24,205,422 shares of Common Stock outstanding at February 28, 2001
were held by approximately 3,100 registered and beneficial 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 term of such agreement, which was extended in August 2000 through August 2,
2005, 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 statements 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,
--------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
STATEMENTS OF OPERATIONS:
(in thousands except per share amounts)
REVENUES:
Vehicle rentals $ 813,741 $ 714,407 $ 635,600 $ 620,045 $ 497,239
Vehicle leasing 198,686 218,614 202,371 164,701 149,713
Fees and services 61,166 57,046 51,770 49,143 47,597
Other 9,850 8,685 9,225 9,899 9,342
----------- ----------- ----------- ----------- -----------
Total revenues 1,083,443 998,752 898,966 843,788 703,891
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Direct vehicle and operating 315,164 289,129 267,504 263,850 225,558
Vehicle depreciation and lease
charges, net 340,448 311,113 305,169 294,911 230,051
Selling, general and
administrative 187,711 190,994 163,256 149,697 140,089
Interest expense, net 97,703 95,114 88,726 87,852 72,868
Amortization of cost in excess
of net assets acquired 5,941 5,842 5,417 6,010 8,169
Intangible asset impairment losses - - - - 157,758
----------- ----------- ----------- ----------- -----------
Total costs and expenses 946,967 892,192 830,072 802,320 834,493
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 136,476 106,560 68,894 41,468 (130,602)
Income tax expense 58,467 46,974 31,229 23,427 16,682
----------- ----------- ----------- ----------- -----------
Net income (loss) (a) $ 78,009 $ 59,586 $ 37,665 $ 18,041 $ (147,284)
=========== =========== =========== =========== ===========
Earnings (loss) per share (a):
Basic $ 3.23 $ 2.47 $ 1.56 $ 0.90 $ (7.36)
Diluted $ 3.18 $ 2.43 $ 1.56 $ 0.90 $ (7.36)
BALANCE SHEET DATA:
(in thousands)
Revenue-earning vehicles, net $ 1,522,388 $ 1,507,692 $ 1,342,066 $ 1,319,490 $ 1,120,346
Total assets $ 2,100,374 $ 2,171,653 $ 1,865,300 $ 1,942,210 $ 1,647,951
Total debt $ 1,424,021 $ 1,555,609 $ 1,313,799 $ 1,418,687 $ 1,241,558
Stockholders' equity $ 458,139 $ 379,127 $ 315,914 $ 268,426 $ 183,883
25
U.S. AND CANADA
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
System-wide Data:
VEHICLE RENTAL REVENUE:
(in thousands)
Company-owned stores $ 814,000 $ 714,000 $ 636,000 $ 620,000 $ 497,000
Franchisee locations 737,000 699,000 620,000 516,000 502,000
----------- ----------- ----------- ----------- -----------
Total vehicle rental revenue $ 1,551,000 $ 1,413,000 $ 1,256,000 $ 1,136,000 $ 999,000
=========== =========== =========== =========== ===========
RENTAL LOCATIONS:
Company-owned stores 182 149 139 139 156
Franchisee locations 765 824 763 752 729
----------- ----------- ----------- ----------- -----------
Total rental locations 947 973 902 891 885
=========== =========== =========== =========== ===========
Average number of vehicles operated
during the period by company-owned
stores and franchisees 134,475 123,814 111,652 103,417 94,992
Peak number of vehicles operated
during the period by company-owned
stores and franchisees 162,515 148,832 134,407 122,286 110,771
COMPANY-OWNED STORES DATA:
VEHICLE RENTAL DATA:
Average number of vehicles operated 65,702 59,218 53,983 53,719 45,037
Number of rental days 20,347,296 18,155,768 16,374,491 16,320,568 13,740,649
Average revenue per day $ 40.00 $ 39.35 $ 38.82 $ 37.98 $ 36.19
Monthly average revenue per vehicle $ 1,032 $ 1,005 $ 980 $ 959 $ 917
VEHICLE LEASING DATA:
Average number of vehicles leased 35,520 38,690 37,709 32,814 30,583
Average monthly lease revenue per unit $ 466 $ 471 $ 447 $ 420 $ 409
(a) Management believes it is important to note that net loss and loss per
share for the year ended December 31, 1996 include intangible asset
impairment losses of $157,758,000, which includes an impairment loss
related to DaimlerChrysler's decision in 1996 to dispose of Thrifty as
a non-core asset in the amount of $155,000,000 and an impairment loss
related to TCL in the amount of $2,758,000.
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 field personnel expenses, facility
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
headquarters personnel expenses, 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.
27
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.
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenues in the
Group's consolidated statements of income:
YEARS ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
REVENUES:
Vehicle rentals 75.1% 71.5% 70.7%
Vehicle leasing 18.3 21.9 22.5
Fees and services 5.7 5.7 5.8
Other 0.9 0.9 1.0
------- ------- -------
Total revenues 100.0 100.0 100.0
------- ------- -------
COSTS AND EXPENSES:
Direct and vehicle operating 29.1 28.9 29.8
Vehicle depreciation and lease charges, net 31.4 31.2 33.9
Selling, general and administrative 17.3 19.1 18.1
Interest expense, net 9.0 9.5 9.9
Amortization of cost in excess of net
assets acquired 0.6 0.6 0.6
------- ------- -------
Total costs and expenses 87.4 89.3 92.3
------- ------- -------
INCOME BEFORE INCOME TAXES 12.6 10.7 7.7
INCOME TAX EXPENSE 5.4 4.7 3.5
------- ------- -------
NET INCOME 7.2% 6.0% 4.2%
======= ======= =======
28
The following table sets forth a breakdown of the Group's two major sources of
revenue:
YEARS ENDED DECEMBER 31,
-----------------------------------------------
2000 1999 1998
----------- ----------- -----------
(in thousands)
VEHICLE RENTAL REVENUE:
Dollar $ 773,328 $ 681,240 $ 603,331
Thrifty 40,413 33,167 32,269
----------- ----------- -----------
Total $ 813,741 $ 714,407 $ 635,600
=========== =========== ===========
LEASING REVENUE:
Dollar $ 25,014 $ 28,762 $ 33,224
Thrifty 173,672 189,852 169,147
----------- ----------- -----------
Total $ 198,686 $ 218,614 $ 202,371
=========== =========== ===========
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999
REVENUES
Total revenues for the year ended December 31, 2000 increased $84.7
million, or 8.5%, to $1.083 billion compared to 1999. The increase in total
revenues was due to an increase in rental revenue of 13.9% over 1999 which was
partially offset by a 9.1% decrease in leasing revenue. Fees and services
revenue increased $4.1 million due to the growth in franchisee rental revenue.
Vehicle rental revenue and vehicle leasing revenue were impacted by franchise
acquisitions at Dollar and conversions of franchisee operations to company-owned
stores at Thrifty.
The Group's vehicle rental revenue for 2000 was $813.7 million, a 13.9%
increase from 1999. This increase was due primarily to a $92.1 million increase
at Dollar and a $7.2 million increase at Thrifty. The growth in vehicle rental
revenue at Dollar was the result of an 11.5% increase in rental days combined
with a 1.8% increase in revenue per day. The rental revenue growth at Dollar
related to the acquisition of franchisees was $16.2 million, which represented
approximately 18% of Dollar's total rental revenue growth during 2000.
Vehicle leasing revenue for 2000 was $198.7 million, a $19.9 million
decrease from 1999. This decrease in vehicle leasing revenue reflects a decrease
of $16.2 million, or 8.5%, in Thrifty's leasing revenue. This decrease was due
to a decline in the average number of vehicles leased to franchisees and to
modifications of the lease program to eliminate certain incentives previously
made available to licensees with a corresponding reduction in the lease rate.
While these lease program modifications resulted in a reduction of vehicle
leasing revenue, they had no impact on operating income. In addition, Thrifty
made some vehicles available under direct financing leases (reflected as other
revenue) as opposed to operating leases. Dollar's leasing revenue declined $3.7
million, or 13%, due to a decrease in the average number of vehicles leased to
franchisees as a result of the acquisition of franchised locations during 2000
which was partially offset by an increase in lease rates.
29
EXPENSES
Total expenses increased 6.1% from $892.2 million in 1999 to $947.0
million in 2000. This increase was due primarily to a $64.8 million, or 9.9%
increase for Dollar and a $9.8 million, or 4.2% decrease at Thrifty. Total
expenses as a percentage of revenue declined to 87.4% in 2000 from 89.3% in
1999.
Direct vehicle and operating expenses for 2000 increased $26.0 million,
or 9.0%, primarily related to a 12.1% increase in the number of rental days over
1999. These expenses increased $31.7 million at Dollar and decreased $5.7
million at Thrifty. The overall increase at Dollar was due to higher airport
concession rents, personnel and other vehicle operating costs partially offset
by a $5.1 million favorable adjustment to insurance reserves recorded during
2000. This favorable adjustment was due to improved claims experience in the
settlement of existing claims as reflected in an independent actuary's reserve
estimate. The decrease at Thrifty was primarily due to the lease program
modifications discussed earlier. Direct vehicle and operating expenses were
29.1% of revenue for 2000, compared to 28.9% of revenue for 1999.
Net vehicle depreciation expense and lease charges for 2000 increased
$29.3 million, or 9.4%, due to both an increase in the average number of owned
and leased vehicles and to higher costs per vehicle compared to 1999. Lease
charges, for vehicles leased from third parties, increased $20.7 million due to
more vehicles leased during 2000. Net vehicle depreciation expense increased
$9.5 million, or 2.9%, due to a 4.7% increase in the average depreciation rate
(6.0% at Dollar and a 1.9% increase at Thrifty) partially offset by a 1.7%
decrease in depreciable fleet. The disposition of Non-Program Vehicles resulted
in a net vehicle gain of $26.1 million in 2000 and $25.2 million in 1999. Net
vehicle depreciation and lease charges increased by $30.2 million at Dollar and
decreased by $0.9 million at Thrifty.
Selling, general and administrative expenses of $187.7 million for 2000
decreased from $190.9 million in 1999, comprised primarily of a $0.2 million
decrease at Dollar and a $3.5 million decrease at Thrifty. The lower costs were
due primarily to lower personnel related costs during 2000.
Net interest expense increased $2.6 million, or 2.7% to $97.7 million.
Net interest expense decreased as a percentage of revenue from 9.5% in 1999 to
9.0% in 2000, partially due to more vehicles under operating leases in 2000. The
increase in expense for the Group was due to the effect of higher average
vehicle debt levels and vehicle interest rates partially offset by an increase
in the interest earned on invested restricted cash and other interest income.
The tax provision for 2000 was $58.5 million. The effective tax rate of
42.8% for 2000 was down from 44.1% in 1999. The decrease in the effective tax
rate was due primarily to the change in the relationship between permanent
differences and Canadian operations to income before income taxes. The effective
tax rate differs from the U.S. statutory tax rate due primarily to
non-deductible amortization of costs in excess of net assets acquired and state
and local taxes.
OPERATING RESULTS
The Group had income before income taxes of $136.5 million for 2000 as
compared to $106.6 million in 1999, a 28.1% increase. This growth was due to a
$24.0 million increase at Dollar and a $5.9 million increase at Thrifty.
30
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 11.7% in rental days combined
with a 1.1% increase in revenue per day. 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.
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 the 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 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.
31
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% for 1999 was down from 45.3% in 1998. The decrease in the effective rate
was due primarily to the change in the relationship between permanent
differences and Canadian operations to income before income taxes. The effective
tax rate differs from the U.S. statutory rate due primarily to non-deductible
amortization 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.
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.
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
2000, cash provided by operating activities was $386.0 million. Net income
adjusted for depreciation, net of vehicle gains, primarily generated cash
provided by operating activities.
Cash used in investing activities was $291.4 million. The principal use
of cash in investing activities was the purchase of revenue-earning vehicles,
which totaled $2.5 billion ($1.5 billion at Dollar and $1.0 billion at Thrifty)
which was partially offset by $2.2 billion ($1.3 billion at Dollar and $0.9
billion 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 decreased $113.9
million for the year ended December 31, 2000 due principally to acquiring
vehicles and reducing vehicle debt. 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
non-vehicle capital expenditures of $33.7 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 $40 million in 2001. In
addition, Dollar will pursue the acquisition of certain franchisee operations,
if available. Franchisee acquisitions of Dollar funded with internal cash
totaled $10.1 million in 2000. Future franchisee acquisition expenditures are
expected to be financed with cash provided from operations.
Cash used in financing activities was $133.6 million primarily due to
the maturity of $264.2 million in asset backed notes during 2000, partially
offset by a net increase in the issuance of commercial paper totaling $129.3
million.
ASSET BACKED NOTES
The asset backed note program is comprised of $1.08 billion in asset
backed notes with maturities ranging from 2001 to 2005. Borrowings under the
asset backed notes are secured by eligible vehicle collateral and bear interest
at fixed rates on $1.04 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 $29.5 million at December 31, 2000.
32
In December 2000, the Company established a $150 million asset backed
Variable Funding Note Purchase Facility (the "Conduit Facility") as part of the
existing asset backed note program. Proceeds are used for financing of vehicle
purchases and for periodic refinancing of asset backed notes. The Conduit
Facility generally bears interest at market-dictated commercial paper rates.
In March 2001, Rental Car Finance Corp. issued $350 million of asset
backed notes (the "2001 Series Notes") to replace existing asset backed notes
which mature over the next five years. The 2001 Series Notes are floating rate
notes that have a term of five years. In conjunction with the issuance of the
2001 Series Notes, the Company also entered into an interest rate swap agreement
to convert this floating rate debt to a fixed rate.
COMMERCIAL PAPER PROGRAM AND LIQUIDITY FACILITY
At December 31, 2000, the Company's commercial paper program (the
"Commercial Paper Program") had a maximum size of $780 million supported by a
$700 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, 2000, the Group had $209.7 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 2000 when it reached $501.4 million to support the
seasonal increase in vehicle fleet.
The Commercial Paper Program was renewed for another 364-day period
effective February 28, 2001, at a maximum size of $800 million, backed by a
renewal of the Liquidity Facility which increased to $715 million.
OTHER OBLIGATIONS AND VEHICLE DEBT
Thrifty has financed its Canadian vehicle fleet through a five-year
fleet securitization program which began in February 1999. Under this program,
Thrifty can obtain vehicle financing up to CND$150 million funded through a bank
commercial paper conduit. At December 31, 2000, Thrifty had approximately
CND$68.5 million funded under this program.
On October 20, 2000, a vehicle manufacturer's finance subsidiary
extended a $115 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 one year and is renewable
annually. At December 31, 2000, the Company had $82.5 million outstanding under
the line of credit.
REVOLVING CREDIT FACILITY
The Company has a $215 million senior secured, revolving credit
facility (the "Revolving Credit Facility") which is used to provide letters of
credit with a sublimit of $190 million and cash for operating activities with a
sublimit of $70 million. During 2000, the Revolving Credit Facility was extended
for a five-year term which expires August 2, 2005. 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, 2000, the Group had
letters of credit outstanding under the Revolving Credit Facility of
approximately $29.3 million and no working capital borrowings.
33
DAIMLERCHRYSLER CREDIT SUPPORT
DaimlerChrysler currently provides $17.1 million of credit support for
the Group's vehicle fleet financing in the form of a letter of credit facility,
related to DaimlerChrysler's sale of the Company in December 1997. 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. 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, 2000, the
Group's total consolidated debt and other obligations was approximately $1.4
billion, substantially all of which was secured debt for the purchase of
vehicles. The Group has scheduled annual principal payments of approximately
$575 million in 2001, $172 million in 2002, $273 million in 2003, $269 million
in 2004 and $137 million in 2005.
The Group intends to use cash generated from operations and from the
sale of vehicles for debt service and, subject to restrictions under its debt
instruments, to make capital investments. The Company has historically repaid
its debt and f