FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2004
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-13647
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
| Delaware (State or other jurisdiction of incorporation or organization) |
73-1356520 (I.R.S. Employer Identification No.) |
5330 East 31st Street,
Tulsa, Oklahoma 74135
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code:
(918) 660-7700
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act): Yes x No o
The number of shares outstanding of the registrant’s Common Stock as of October 29, 2004 was 25,021,207.
Page
PART I - FINANCIAL INFORMATION
| ITEM | 1. FINANCIAL STATEMENTS | 3 |
| ITEM | 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF |
| FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 17 |
| ITEM | 3. QUANTITATIVE AND QUALITATIVE |
| DISCLOSURES ABOUT MARKET RISK | 26 |
| ITEM | 4. CONTROLS AND PROCEDURES | 26 |
PART II - OTHER INFORMATION
| ITEM | 1. LEGAL PROCEEDINGS | 27 |
| ITEM | 2. UNREGISTERED SALES OF EQUITY SECURITIES |
| AND USE OF PROCEEDS | 28 |
| ITEM | 5. OTHER INFORMATION | 28 |
| ITEM | 6. EXHIBITS | 28 |
| SIGNATURES | 29 |
Some of the statements contained herein under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Dollar Thrifty Automotive Group, Inc. believes such forward-looking statements are based upon 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 the companies’ customers reside and where the companies and their franchisees operate; natural hazards or catastrophes; incidents of terrorism; airline travel patterns; changes in capital availability or cost; costs and other terms related to the acquisition and disposition of automobiles; systems or communications failures; costs of conducting business and changes in structure or operations; and certain regulatory and environmental matters and litigation risks. Should one or more of these risks or uncertainties, among others, materialize, actual results could vary from those estimated, anticipated or projected. Dollar Thrifty Automotive Group, Inc. undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.
2
| ITEM 1. | FINANCIAL STATEMENTS |
To the Board of Directors and
Stockholders of
Dollar Thrifty Automotive Group, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of Dollar Thrifty Automotive Group, Inc. and subsidiaries (the “Company”) as of September 30, 2004, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2004 and 2003, and cash flows for the nine-month periods ended September 30, 2004 and 2003. These interim financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Dollar Thrifty Automotive Group, Inc. and subsidiaries as of December 31, 2003, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 12, 2004, we expressed an unqualified opinion on those consolidated financial statements.
/s/ DELOITTE & TOUCHE LLP
Tulsa, Oklahoma
November 4,
2004
3
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited) | ||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||
| REVENUES: Vehicle rentals |
$ | 377,989 | $ | 308,691 | $ | 960,374 | $ | 750,762 | ||||||
| Vehicle leasing | 24,688 | 41,863 | 63,165 | 120,531 | ||||||||||
| Fees and services | 16,384 | 15,372 | 43,467 | 43,235 | ||||||||||
| Other | 2,085 | 4,525 | 7,788 | 10,505 | ||||||||||
| Total revenues | 421,146 | 370,451 | 1,074,794 | 925,033 | ||||||||||
| COSTS AND EXPENSES: Direct vehicle and operating |
205,832 | 148,129 | 542,480 | 368,152 | ||||||||||
| Vehicle depreciation and lease charges, net | 88,033 | 110,790 | 222,017 | 299,891 | ||||||||||
| Selling, general and administrative | 60,487 | 51,694 | 164,287 | 141,490 | ||||||||||
| Interest expense, net of interest income | 26,280 | 24,765 | 68,527 | 66,542 | ||||||||||
| Total costs and expenses | 380,632 | 335,378 | 997,311 | 876,075 | ||||||||||
| INCOME BEFORE INCOME TAXES | 40,514 | 35,073 | 77,483 | 48,958 | ||||||||||
| INCOME TAX EXPENSE | 15,480 | 13,709 | 31,784 | 20,671 | ||||||||||
| INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE |
25,034 | 21,364 | 45,699 | 28,287 | ||||||||||
| CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE |
- | - | 3,730 | - | ||||||||||
| NET INCOME | $ | 25,034 | $ | 21,364 | $ | 49,429 | $ | 28,287 | ||||||
| BASIC EARNINGS PER SHARE: Income before cumulative effect of a change in accounting principle |
$ | 1.00 | $ | 0.87 | $ | 1.83 | $ | 1.16 | ||||||
| Cumulative effect of a change in accounting principle | - | - | 0.15 | - | ||||||||||
| Net income | $ | 1.00 | $ | 0.87 | $ | 1.98 | $ | 1.16 | ||||||
| DILUTED EARNINGS PER SHARE: Income before cumulative effect of a change in accounting principle |
$ | 0.96 | $ | 0.84 | $ | 1.74 | $ | 1.12 | ||||||
| Cumulative effect of a change in accounting principle | - | - | 0.14 | - | ||||||||||
| Net income | $ | 0.96 | $ | 0.84 | $ | 1.88 | $ | 1.12 | ||||||
See notes to condensed consolidated financial statements.
4
| September 30, 2004 |
December 31, 2003 |
|||||||
|---|---|---|---|---|---|---|---|---|
| (Unaudited) | ||||||||
| ASSETS: | ||||||||
| Cash and cash equivalents | $ | 199,371 | $ | 192,006 | ||||
| Restricted cash and investments | 283,743 | 536,547 | ||||||
| Receivables, net | 186,552 | 163,465 | ||||||
| Prepaid expenses and other assets | 86,688 | 67,375 | ||||||
| Revenue-earning vehicles, net | 2,620,933 | 2,136,719 | ||||||
| Property and equipment, net | 96,302 | 97,939 | ||||||
| Software and other intangible assets, net | 19,226 | 14,587 | ||||||
| Goodwill | 251,899 | 203,861 | ||||||
| $ | 3,744,714 | $ | 3,412,499 | |||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| LIABILITIES: | ||||||||
| Accounts payable | $ | 48,861 | $ | 48,515 | ||||
| Accrued liabilities | 174,235 | 171,148 | ||||||
| Deferred income tax liability | 194,658 | 160,923 | ||||||
| Public liability and property damage | 79,253 | 56,294 | ||||||
| Vehicle debt and obligations | 2,656,334 | 2,442,162 | ||||||
| Total liabilities | 3,153,341 | 2,879,042 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS' EQUITY: | ||||||||
| Preferred stock, $.01 par value: | ||||||||
| Authorized 10,000,000 shares; none outstanding | - | - | ||||||
| Common stock, $.01 par value: | ||||||||
| Authorized 50,000,000 shares; | ||||||||
| 25,718,507 and 25,196,941 issued, respectively, and | ||||||||
| 25,021,207 and 24,960,941 outstanding, respectively | 257 | 252 | ||||||
| Additional capital | 741,859 | 729,306 | ||||||
| Accumulated deficit | (121,518 | ) | (170,947 | ) | ||||
| Accumulated other comprehensive loss | (11,694 | ) | (19,345 | ) | ||||
| Treasury stock, at cost (697,300 | ||||||||
| and 236,000 shares, respectively) | (17,531 | ) | (5,809 | ) | ||||
| Total stockholders' equity | 591,373 | 533,457 | ||||||
| $ | 3,744,714 | $ | 3,412,499 | |||||
See notes to condensed consolidated financial statements.
5
| Nine Months Ended September 30, |
||||||||
|---|---|---|---|---|---|---|---|---|
| (Unaudited) | ||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 49,429 | $ | 28,287 | ||||
| Adjustments to reconcile net income to | ||||||||
| net cash provided by operating activities: | ||||||||
| Depreciation: | ||||||||
| Vehicle depreciation | 226,639 | 292,267 | ||||||
| Non-vehicle depreciation | 13,158 | 11,231 | ||||||
| Net (gains)/losses from disposition of revenue- | ||||||||
| earning vehicles | (17,787 | ) | 2,693 | |||||
| Amortization | 4,111 | 3,994 | ||||||
| Performance share incentive plan | 4,068 | 2,413 | ||||||
| Net losses from sale of property and equipment | 237 | 91 | ||||||
| Provision for losses on receivables | 1,848 | 4,677 | ||||||
| Deferred income taxes | 29,427 | 20,462 | ||||||
| Change in assets and liabilities, net of acquisitions: | ||||||||
| Income taxes receivable | - | 22,048 | ||||||
| Receivables | (11,605 | ) | 95,829 | |||||
| Prepaid expenses and other assets | (8,626 | ) | (7,716 | ) | ||||
| Accounts payable and accrued liabilities | 12,969 | 1,197 | ||||||
| Public liability and property damage | 22,959 | 13,647 | ||||||
| Other | 683 | 836 | ||||||
| Net cash provided by operating activities | 327,510 | 491,956 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Revenue-earning vehicles: | ||||||||
| Purchases | (2,815,495 | ) | (2,758,849 | ) | ||||
| Proceeds from sales | 2,116,503 | 2,055,546 | ||||||
| Net change in restricted cash and investments | 252,804 | (75,765 | ) | |||||
| Property, equipment and software: | ||||||||
| Purchases | (18,202 | ) | (12,694 | ) | ||||
| Proceeds from sales | 34 | 34 | ||||||
| Acquisition of businesses, net of cash acquired | (50,240 | ) | (29,553 | ) | ||||
| Net cash used in investing activities | (514,596 | ) | (821,281 | ) | ||||
(Continued)
6
| Nine Months Ended September 30, |
||||||||
|---|---|---|---|---|---|---|---|---|
| (Unaudited) | ||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Vehicle debt and obligations: | ||||||||
| Proceeds | 4,143,320 | 4,075,539 | ||||||
| Payments | (3,936,365 | ) | (3,743,248 | ) | ||||
| Issuance of common shares | 8,490 | 2,395 | ||||||
| Purchase of common stock for the treasury | (11,722 | ) | (1,943 | ) | ||||
| Financing issue costs | (9,272 | ) | (5,102 | ) | ||||
| Net cash provided by financing activities | 194,451 | 327,641 | ||||||
| CHANGE IN CASH AND CASH EQUIVALENTS | 7,365 | (1,684 | ) | |||||
| CASH AND CASH EQUIVALENTS: | ||||||||
| Beginning of period | 192,006 | 143,485 | ||||||
| End of period | $ | 199,371 | $ | 141,801 | ||||
| SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES: | ||||||||
| Receivables from capital lease of vehicles to franchisees | $ | 13,317 | $ | 38,884 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for: | ||||||||
| Income taxes to taxing authorities | $ | 2,357 | $ | (22,233 | ) | |||
| Interest | $ | 68,715 | $ | 65,816 | ||||
See notes to condensed consolidated financial statements.
7
| 1. | BASIS OF PRESENTATION |
| The accompanying condensed consolidated financial statements include the accounts of Dollar Thrifty Automotive Group, Inc. (“DTG”) and its subsidiaries. DTG’s significant wholly owned subsidiaries include DTG Operations, Inc., Thrifty, Inc., Dollar Rent A Car, Inc., Rental Car Finance Corp. (“RCFC”) and Dollar Thrifty Funding Corp. Thrifty, Inc. is the parent company to Thrifty Rent-A-Car System, Inc., which is the parent company to Dollar Thrifty Automotive Group Canada Inc. (“DTG Canada”). Beginning March 31, 2004, Thrifty Rent-A-Car System, Inc. National Advertising Committee (“Thrifty National Ad”) was consolidated in the financial statements of DTG under the provisions of FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” as amended in December 2003 (“FIN 46(R)”), an interpretation of Accounting Research Bulletin No. 51 (Note 14). The term the “Company” is used to refer to DTG and subsidiaries, individually or collectively, as the context may require. |
| The accounting policies set forth in Note 2 to the consolidated financial statements contained in the Form 10-K filed with the Securities and Exchange Commission on March 12, 2004 have been followed in preparing the accompanying condensed consolidated financial statements. |
| The condensed consolidated financial statements and notes thereto for interim periods included herein have not been audited by an independent registered public accounting firm. The condensed consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the Company’s opinion, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods have been made. Results for interim periods are not necessarily indicative of results for a full year. |
| Beginning July 1, 2003, the Company reclassified the amortization of vehicle manufacturer’s purchase incentives to vehicle depreciation and lease charges, net. Previously, such amortization was recorded as offsets against direct vehicle and operating expense. Comparable amounts in the condensed consolidated financial statements for the nine months ended September 30, 2003 totaling $9.3 million have been reclassified to conform to the classifications used in the condensed consolidated financial statements for the nine months ended September 30, 2004. These reclassifications had no impact on revenue or net income. |
| In October, 2003, the Company implemented the provisions of Emerging Issues Task Force No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor” (“EITF 02-16”). Under EITF 02-16, effective with the amendment to the vehicle supply agreement with DaimlerChrysler, the Company began accounting for these promotional payments received as a reduction of the cost of the vehicles when acquired and recognized over the lives of the vehicles as a reduction of depreciation expense. Under the new method, the promotional payments will be recognized over the 19 to 20 month period during which the related vehicles are to be cycled through the fleet. Previously, these payments were accrued and amortized on a straight line basis over the 12 month vehicle model year as a reduction in direct vehicle and operating expenses. As required under EITF 02-16, the effect of this change is to be accounted for prospectively as a change in estimate, thus, no reclassification has been made in the condensed consolidated financial statements for the three months and nine months ended September 30, 2003 to conform to the classifications used in the three months and nine months ended September 30, 2004. |
8
| 2. | ACQUISITIONS |
| During the nine months ended September 30, 2004, the Company acquired certain assets and assumed certain liabilities relating to 18 locations from former franchisees in Aspen, Colorado; Greensboro, North Carolina; Raleigh-Durham, North Carolina; Ft. Myers, Florida; Orlando, Florida; Tampa, Florida and Chicago, Illinois for the Thrifty brand and in Aspen, Colorado and Vancouver, Canada for the Dollar brand. Total cash paid during the nine months ended September 30, 2004, net of cash acquired for acquisitions, was $50.2 million. The goodwill recognized in these transactions totaled $47.9 million, all of which is amortizable for tax purposes. Each of these transactions has been accounted for using the purchase method of accounting and operating results of the acquirees from the dates of acquisition, which are individually and collectively not material to amounts presented for the three months and nine months ended September 30, 2004, are included in the condensed consolidated statements of income of the Company. |
| During the third quarter of 2004, the Company reached an agreement to acquire operations of the Thrifty franchisee in Orange County, California. The expected completion date is November 16, 2004. |
| 3. | VEHICLE DEPRECIATION AND LEASE CHARGES, NET |
| Vehicle depreciation and lease charges includes the following (in thousands): |
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
2004 |
2003 |
|||||||||||
| Depreciation of revenue-earning vehicles, net (a) | $ | 82,467 | $ | 108,641 | $ | 208,852 | $ | 294,960 | ||||||
| Rents paid for vehicles leased | 5,566 | 2,149 | 13,165 | 4,931 | ||||||||||
| $ | 88,033 | $ | 110,790 | $ | 222,017 | $ | 299,891 | |||||||
____________________
| (a) For the three months and six months ended September 30, 2004, depreciation expense is net of the amortization of promotional payments totaling $21.3 million and $56.6 million, respectively, due to the Company’s implementation of EITF 02-16. Previously, the amortization of promotional payments was recognized as a reduction of direct vehicle and operating expenses (Note 14). |
| 4. | EARNINGS PER SHARE |
| Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is based on the combined weighted average number of common shares and dilutive potential common shares outstanding which include, where appropriate, the assumed exercise of options. In computing diluted earnings per share, the Company has utilized the treasury stock method. |
9
| The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted earnings per share (“EPS”) is shown below (in thousands except share and per share data): |
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
2004 |
2003 |
|||||||||||
| Income before cumulative effect of a change in accounting principle |
$ | 25,034 | $ | 21,364 | $ | 45,699 | $ | 28,287 | ||||||
| Basic EPS: | ||||||||||||||
| Weighted average common shares | 24,952,426 | 24,517,960 | 24,983,528 | 24,489,428 | ||||||||||
| Basic EPS | $ | 1.00 | $ | 0.87 | $ | 1.83 | $ | 1.16 | ||||||
| Diluted EPS: | ||||||||||||||
| Weighted average common shares | 24,952,426 | 24,517,960 | 24,983,528 | 24,489,428 | ||||||||||
| Shares contingently issuable: | ||||||||||||||
| Stock options | 388,240 | 437,797 | 437,912 | 262,848 | ||||||||||
| Performance awards | 575,491 | 268,028 | 563,322 | 231,637 | ||||||||||
| Shares held for compensation plans | 172,980 | 201,782 | 177,809 | 195,579 | ||||||||||
| Director compensation shares deferred | 106,334 | 70,527 | 102,468 | 64,513 | ||||||||||
| Shares applicable to diluted | 26,195,471 | 25,496,094 | 26,265,039 | 25,244,005 | ||||||||||
| Diluted EPS | $ | 0.96 | $ | 0.84 | $ | 1.74 | $ | 1.12 | ||||||
| For the three months and nine months ended September 30, 2004, all options to purchase shares of common stock were included in the computation of diluted earnings per share because no exercise price was greater than the average market price of the common shares. For the three months and nine months ended September 30, 2003, options to purchase 81,300 and 1,043,700, respectively, shares of common stock were outstanding but were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price of the common shares. |
| 5. | STOCK-BASED COMPENSATION |
| Beginning January 1, 2003, the Company accounted for stock-based compensation plans using the fair value-based method prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 123 and elected the prospective treatment option, which requires recognition as compensation expense all future employee awards granted, modified or settled as allowed under SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” an amendment of SFAS No. 123. Compensation cost for stock options and performance share and restricted stock awards is recognized based on the fair value of the awards granted at the grant date. |
10
| The following table provides pro forma results as if the fair value-based method had been applied to all outstanding and unvested awards, including stock options, performance share and restricted stock awards, in each period presented (in thousands): |
| Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
2004 |
2003 |
||||||||||||
| Net income, as reported | $ | 25,034 | $ | 21,364 | $ | 49,429 | $ | 28,287 | |||||||
| Add: compensation expense related to performance share and restricted stock awards included in reported net income, net of related tax effects |
1,389 | 943 | 2,440 | 1,395 | |||||||||||
| Deduct: compensation expense related to stock options granted prior to January 1, 2003 and performance share and restricted stock awards determined under fair value-based method for all awards, net of related tax effects |
(1,423 | ) | (1,181 | ) | (2,617 | ) | (2,260 | ) | |||||||
| Pro forma net income | $ | 25,000 | $ | 21,126 | $ | 49,252 | $ | 27,422 | |||||||
| Earnings per share: | |||||||||||||||
| Basic, as reported | $ | 1.00 | $ | 0.87 | $ | 1.98 | $ | 1.16 | |||||||
| Basic, pro forma | $ | 1.00 | $ | 0.86 | $ | 1.97 | $ | 1.12 | |||||||
| Diluted, as reported | $ | 0.96 | $ | 0.84 | $ | 1.88 | $ | 1.12 | |||||||
| Diluted, pro forma | $ | 0.95 | $ | 0.83 | $ | 1.88 | $ | 1.09 | |||||||
| No stock options were granted after January 1, 2003. The assumptions used to calculate compensation expense relating to stock options included in the pro forma results for the three months and nine months ended September 30, 2004 and 2003 were as follows: |
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
2004 |
2003 |
|||||||||||
| Risk-free interest rate | 4.46% | 4.46% | 4.46% | 4.46% | ||||||||||
| Expected volatility | 54.57% | 54.57% | 54.57% | 54.57% | ||||||||||
| Weighted-average expected life of awards | 5 years | 5 years | 5 years | 5 years | ||||||||||
| Dividend payments | - | - | - | - | ||||||||||
11
| 6. | RECEIVABLES |
| Receivables consist of the following (in thousands): |
| September 30, 2004 |
December 31, 2003 |
|||||||
|---|---|---|---|---|---|---|---|---|
| Trade accounts receivable | $ | 115,131 | $ | 89,737 | ||||
| Notes receivable | 2,323 | 3,010 | ||||||
| Financing receivables, net | 8,897 | 8,321 | ||||||
| Due from DaimlerChrysler | 58,639 | 68,721 | ||||||
| Other vehicle manufacturer receivables | 16,659 | 6,439 | ||||||
| 201,649 | 176,228 | |||||||
| Less: Allowance for doubtful accounts | (15,097 | ) | (12,763 | ) | ||||
| $ | 186,552 | $ | 163,465 | |||||
| Trade accounts and notes receivable include primarily amounts due from franchisees and tour operators arising from billings under standard credit terms for services provided in the normal course of business and amounts due from the sale of revenue-earning vehicles. Notes receivable are generally issued by certain franchisees at current market interest rates with varying maturities and are generally personally guaranteed by the franchisee owner. |
| Financing receivables arise from direct financing and sales-type leases of vehicles with franchisees. These receivables principally have terms up to one year and are collateralized by the vehicles. |
| Due from DaimlerChrysler is comprised primarily of amounts due under various guaranteed residual, buyback, incentive and promotion programs, which are paid according to contract terms and are generally received within 60 days. |
| Other vehicle manufacturer receivables include primarily amounts due under guaranteed residual and incentive programs, which are paid according to contract terms and are generally received within 60 days. |
| 7. | GOODWILL |
| The Company has elected to perform the annual impairment test on goodwill during the second quarter of each year, unless circumstances arise that require more frequent testing. During the second quarter of 2004, the Company completed the annual impairment test of goodwill and concluded goodwill was not impaired. |
| The changes in the carrying amount of goodwill for the nine months ended September 30, 2004 are as follows (in thousands): |
| Balance as of January 1, 2004 | $ | 203,861 | |||
| Goodwill through acquisitions during year | 47,864 | ||||
| Effect of change in rates used for foreign currency translation | 174 | ||||
| Balance as of September 30, 2004 | $ | 251,899 | |||
12
| 8. | VEHICLE DEBT AND OBLIGATIONS |
| Vehicle debt and obligations as of September 30, 2004 and December 31, 2003 consist of the following (in thousands): |
| September 30, 2004 |
December 31, 2003 |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Asset backed notes: | ||||||||||
| 2004 Series notes | $ | 500,000 | $ | - | ||||||
| 2003 Series notes | 375,000 | 375,000 | ||||||||
| 2002 Series notes | 350,000 | 350,000 | ||||||||
| 2001 Series notes | 350,000 | 350,000 | ||||||||
| 1999 Series notes | 75,000 | 206,250 | ||||||||
| 1997 Series notes | 148,884 | 200,000 | ||||||||
| 1,798,884 | 1,481,250 | |||||||||
| Discounts on asset backed notes | (8 | ) | (62 | ) | ||||||
| Asset backed notes, net of discount | 1,798,876 | 1,481,188 | ||||||||
| Conduit facility | 350,000 | 275,000 | ||||||||
| Commercial paper, net of discount of $210 and $555 | 145,610 | 354,741 | ||||||||
| Other vehicle debt | 203,972 | 244,539 | ||||||||
| Limited partner interest in limited partnership | 157,876 | 86,694 | ||||||||
| Total vehicle debt and obligations | $ | 2,656,334 | $ | 2,442,162 | ||||||
| In February 2004, the Company extended its commercial paper program (the “Commercial Paper Program”) and supporting bank liquidity facility (the “Liquidity Facility”) to April 1, 2004. On April 1, 2004, the Company renewed and increased its Commercial Paper Program for another 364-day period at a maximum size of $594 million backed by a renewal of the Liquidity Facility in the amount of $520 million. |
| On April 1, 2004, the Company extended the Revolving Credit Facility (the “Revolving Credit Facility”) to April 1, 2009 and increased the capacity from $215 million to $300 million. The Revolving Credit Facility permits letter of credit usage of up to $300 million and working capital borrowings of up to $100 million. The Company had letters of credit outstanding under the Revolving Credit Facility of approximately $164.5 million and no working capital borrowings at September 30, 2004. |
| On April 1, 2004, the Company renewed its Variable Funding Note Purchase Facility (the “Conduit Facility”) for another 364-day period and increased the capacity from $275 million to $350 million. |
| On April 6, 2004, a bank line of credit for vehicles was renewed for another year and increased from $87 million to $97 million. |
| On April 30, 2004, the Company extended the Canadian fleet securitization program through a limited partnership to December 31, 2005 and increased the capacity from CND $200 million to CND $235 million. |
| On May 5, 2004, RCFC issued $500 million of asset backed notes (the “2004 Series Notes”) to replace maturing asset backed notes and provide for growth in the Company’s fleet. The 2004 Series Notes are floating rate notes that have a term of four years. In conjunction with the issuance of the 2004 Series Notes, the Company also entered into interest rate swap agreements to convert this floating rate debt to fixed rate debt. |
| During the third quarter of 2004, existing vehicle manufacturer lines of credit totaling $140 million, which are included in other vehicle debt, were renewed at existing capacity levels. |
13
| 9. | DERIVATIVE FINANCIAL INSTRUMENTS |
| The Company is exposed to market risks, such as changes in interest rates. Consequently, the Company manages the financial exposure as part of its risk management program, by striving to reduce the potentially adverse effects that the potential volatility of the financial markets may have on the Company’s operating results. In 2001, the Company began entering into interest rate swap agreements, in conjunction with each related new asset backed note issuance in 2001 through 2004, to convert variable interest rates on a total of $1.4 billion in asset backed notes to fixed interest rates. These swaps, which have termination dates through June 2008, constitute cash flow hedges and satisfy the criteria for hedge accounting. The Company reflects these swaps in its statement of financial position as a liability at fair market value, which was approximately $22.0 million at September 30, 2004, and the Company recorded the related income of $6.7 million, which is net of income taxes, in total comprehensive income for the nine-month period ended September 30, 2004 (Note 10). Deferred gains and losses are recognized in earnings as an adjustment to interest expense over the same period in which the related interest payments being hedged are recognized to earnings. Based on projected increases in market interest rates, the Company estimates that the existing deferred loss of approximately $13 million at September 30, 2004 will be reclassified into earnings within the next twelve months. |
| 10. | COMPREHENSIVE INCOME |
| Comprehensive income is comprised of the following (in thousands): |
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
2004 |
2003 |
|||||||||||
| Net income | $ | 25,034 | $ | 21,364 | $ | 49,429 | $ | 28,287 | ||||||
| Interest rate swap adjustment | (5,656 | ) | 6,683 | 6,736 | (614 | ) | ||||||||
| Foreign currency translation adjustment | 1,333 | 287 | 915 | 1,733 | ||||||||||
| Comprehensive income | $ | 20,711 | $ | 28,334 | $ | 57,080 | $ | 29,406 | ||||||
| 11. | INCOME TAXES |
| U.S. operating results are included in the Company’s consolidated U.S. income tax returns and as such the Company has established tax provisions separately for U.S. taxable income and Canadian losses, for which no income tax benefit was recorded. The Company has provided for income taxes in the U.S. and in Canada based on taxable income or loss and other tax attributes separately for each jurisdiction. Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. A valuation allowance is recorded for deferred income tax assets when management determines it is more likely than not that such assets will not be realized. |
| For the three months and nine months ended September 30, 2004, the effective tax rate of 38.2% and 41.0%, respectively, differed from the U.S. statutory rate due primarily to the state and local taxes, losses relating to DTG Canada for which no benefit was recorded due to full valuation allowance and, beginning April 1, 2004, the consolidation of Thrifty National Ad’s operating results into the Company’s operating results due to the adoption of FIN 46(R). Thrifty National Ad files its tax returns under the provisions applicable to a trust, thus, there is no income tax effect for its profits and losses. |
14
| 12. | SHARE REPURCHASE PROGRAM |
| On July 30, 2003, the Company announced that its Board of Directors had authorized a stock repurchase program which allows the repurchase of up to $30 million of the Company’s stock over the next two years in the open market or in privately negotiated transactions. During the nine months ended September 30, 2004, the Company repurchased 461,300 shares at an average price of $25.41 per share, totaling $11.7 million. Since the stock repurchase program began in 2003, the Company has repurchased 697,300 shares at an average price of $25.14 per share, totaling $17.5 million. |
| 13. | COMMITMENTS AND CONTINGENCIES |
| Guarantees |
| The Company may provide guarantees, including certain letters of credit or performance bonds, on behalf of franchisees to support compliance with airport concession bids. Non-performance of the obligation by the franchisee would trigger the obligation of the Company. As of September 30, 2004, the maximum future payments under these guarantees are $0.1 million with expiration in January 2005. As of September 30, 2004, the Company has not recognized a liability for guarantees issued or modified after December 31, 2002, which totaled $0.1 million due to likelihood of a triggering event as not probable. |
| Contingencies |
| Various claims and legal proceedings have been asserted or instituted against the Company, including some purporting to be class actions, and some which demand large monetary damages or other relief which could result in significant expenditures. Litigation is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. The Company is also subject to potential liability related to environmental matters. The Company establishes reserves for litigation and environmental matters when the loss is probable and reasonably estimable. It is reasonably possible that the final resolution of some of these matters may require the Company to make expenditures, in excess of established reserves, over an extended period of time and in a range of amounts that cannot be reasonably estimated. The term “reasonably possible” is used herein to mean that the chance of a future transaction or event occurring is more than remote but less than likely. Although the final resolution of any such matters could have a material effect on the Company’s consolidated operating results for the particular reporting period in which an adjustment of the estimated liability is recorded, the Company believes that any resulting liability would not materially affect its consolidated financial position. |
| 14. | NEW ACCOUNTING STANDARDS |
| EITF 02-16 “Accounting by a Customer (Including a Reseller) for Certain Considerations Received from a Vendor”, is applicable for the Company in relation to accounting for purchase and promotional incentives. Under EITF 02-16, the Company began accounting for these promotional payments received as a reduction of the cost of the vehicles when acquired and recognized over the lives of the vehicles as a reduction of depreciation expense. Previously, these payments were recognized on a straight-line basis as a reduction of direct vehicle and operating expenses. The Company adopted EITF 02-16 in the fourth quarter of 2003 due to an amendment to the Company’s vehicle supply agreement. |
15
| In January 2003, the FASB issued FIN 46(R), which requires existing unconsolidated variable interest entities (“VIE’s”) to be consolidated by their primary beneficiaries if that company is subject to a majority of the risk of loss, if any, from the VIE’s activities, or entitled to receive a majority of the entity’s residual returns, or both. The Company believes that its involvement with Thrifty National Ad qualifies Thrifty National Ad as a VIE with the Company representing the primary beneficiary. Consequently, Thrifty National Ad was consolidated in the Company’s financial statements for the quarter ended March 31, 2004. The fair value of the net assets of Thrifty National Ad of approximately $3.7 million at March 31, 2004, was recorded as a cumulative effect of a change in accounting principle in the Company’s condensed consolidated statements of income. Beginning April 1, 2004, the Company began consolidating the operating results of Thrifty National Ad with its operating results. Thrifty National Ad is established for the limited purpose of collecting and disbursing funds for advertising and promotion programs for the benefit of the Thrifty Car Rental corporate and franchisee network. Thrifty National Ad files its tax returns under the provisions applicable to a trust. Accordingly, there is no tax effect on the cumulative effect of the change in accounting principle or on subsequent profits or losses. The Company’s estimated maximum exposure to loss as a result of its continuing involvement with Thrifty National Ad is expected to be minimal as expenditures are managed by Thrifty National Ad based on receipts. The Company also evaluated its franchisee network as potential VIE’s subject to possible consolidation. The Company determined that its franchisees met the FIN 46(R) definition of a business; however, the Company did not provide more than half of each franchisees’ equity or other financial support, among other qualifying conditions. Therefore, the Company believes that its franchisees do not qualify as VIE’s under FIN 46(R) and are not required to be consolidated into the Company’s financial statements. |
| 15. | SUBSEQUENT EVENTS |
| The Company acquired the operations of the Thrifty franchisees in Corpus Christi, Texas effective October 15, 2004 and in Los Angeles, California and San Diego, California effective November 1, 2004. Additionally, the Company has reached agreement to acquire the operations of its Dollar and Thrifty franchisees in Boise, Idaho and its Thrifty franchise operation in Orange County, California. |
*******
16
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following table sets forth the percentage of total revenues (including the reclassification discussed in Note 1 to the condensed consolidated financial statements) in the Company’s condensed consolidated statements of income:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Percentage of Revenue) | ||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||
| REVENUES: | ||||||||||||||
| Vehicle rentals | 89.8 | % | 83.3 | % | 89.4 | % | 81.2 | % | ||||||
| Vehicle leasing | 5.9 | 11.3 | 5.9 | 13.0 | ||||||||||
| Fees and services | 3.9 | 4.2 | 4.0 | 4.7 | ||||||||||
| Other | 0.4 | 1.2 | 0.7 | 1.1 | ||||||||||
| Total revenues | 100.0 | 100.0 | 100.0 | 100.0 | ||||||||||
| COSTS AND EXPENSES: | ||||||||||||||
| Direct vehicle and operating | 48.9 | 40.0 | 50.5 | 39.8 | ||||||||||
| Vehicle depreciation and lease charges, net | 20.9 | 29.9 | 20.6 | 32.4 | ||||||||||
| Selling, general and administrative | 14.4 | 14.0 | 15.3 | 15.3 | ||||||||||
| Interest expense, net of interest income | 6.2 | 6.6 | 6.4 | 7.2 | ||||||||||
| Total costs and expenses | 90.4 | 90.5 | 92.8 | 94.7 | ||||||||||
| INCOME BEFORE INCOME TAXES | 9.6 | 9.5 | 7.2 | 5.3 | ||||||||||
| INCOME TAX EXPENSE | 3.7 | 3.7 | 2.9 | 2.2 | ||||||||||
| INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE |
5.9 | 5.8 | 4.3 | 3.1 | ||||||||||
| CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE |
0.0 | 0.0 | 0.3 | 0.0 | ||||||||||
| NET INCOME | 5.9 | % | 5.8 | % | 4.6 | % | 3.1 | % | ||||||
17
The following table sets forth certain selected operating data of the Company:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| U.S. and Canada | 2004 |
2003 |
% Change |
2004 |
2003 |
% Change |
||||||||||||||
| (Company-Owned Stores) | ||||||||||||||||||||
| Vehicle Rental Data: | ||||||||||||||||||||
| (includes new stores) | ||||||||||||||||||||
| Average number of vehicles operated | 118,933 | 94,335 | 26.1% | 102,578 | 79,752 | 28.6% | ||||||||||||||
| Number of rental days | 9,306,217 | 7,391,000 | 25.9% | 24,059,740 | 18,268,664 | 31.7% | ||||||||||||||
| Average revenue per day | $ | 40.62 | $ | 41.77 | (2.8% | ) | $ | 39.92 | $ | 41.10 | (2.9% | ) | ||||||||
| Monthly average revenue per vehicle | $ | 1,059 | $ | 1,091 | (2.9% | ) | $ | 1,040 | $ | 1,046 | (0.6% | ) | ||||||||
| Same Store Vehicle Rental Data: | ||||||||||||||||||||
| (excludes new stores) | ||||||||||||||||||||
| Average number of vehicles operated | 101,307 | 94,335 | 7.4% | 86,576 | 79,752 | 8.6% | ||||||||||||||
| Number of rental days | 7,922,468 | 7,391,000 | 7.2% | 20,320,100 | 18,268,664 | 11.2% | ||||||||||||||
| Vehicle Leasing Data: | ||||||||||||||||||||
| Average number of vehicles leased | 21,394 | 30,659 | (30.2% | ) | 18,434 | 29,663 | (37.9% | ) | ||||||||||||
| Monthly average revenue per vehicle | $ | 385 | $ | 455 | (15.4% | ) | $ | 381 | $ | 451 | (15.5% | ) | ||||||||
During the three months ended September 30, 2004, business and leisure travel continued to improve despite the negative impact of the disruptions related to the hurricanes in Florida and surrounding areas late in the quarter. The Company’s revenue and profits increased in the third quarter of 2004 compared to last year’s third quarter. The Company achieved strong same store revenue growth as well as strong revenue growth from franchisee acquisitions, although revenue per day declined 2.8% due to highly competitive industry conditions. The Company also experienced lower vehicle costs compared to last year’s third quarter.
Operating Results
The Company had income of $40.5 million before income taxes for the third quarter of 2004, as compared to $35.1 million in the third quarter of 2003. The Company’s operating results were negatively impacted from the slow down in travel to Florida, a state that provides approximately 30 percent of the Company’s total rental revenue, late in the quarter due to the hurricanes.
18
| Revenues | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended September 30, |
$ Increase/ | % Increase/ | ||||||||||||
| 2004 |
2003 |
(decrease) |
(decrease) |
|||||||||||
| (in millions) | ||||||||||||||
| Vehicle rentals | $ | 378.0 | $ | 308.7 | $ | 69.3 | 22.4 | % | ||||||
| Vehicle leasing | 24.7 | 41.8 | (17.1 | ) | (41.0 | %) | ||||||||
| Fees and services | 16.4 | 15.4 | 1.0 | 6.6 | % | |||||||||
| Other | 2.0 | 4.5 | (2.5 | ) | (53.9 | %) | ||||||||
| Total revenues | $ | 421.1 | $ | 370.4 | $ | 50.7 | 13.7 | % | ||||||
| Vehicle rental metrics: | ||||||||||||||
| Number of rental days | 9,306,217 | 7,391,000 | 1,915,217 | 25.9 | % | |||||||||
| Average revenue per day | $ | 40.62 | $ | 41.77 | $ | (1.15 | ) | (2.8 | %) | |||||
| Vehicle leasing metrics: | ||||||||||||||
| Average number of vehicles leased | 21,394 | 30,659 | (9,265 | ) | (30.2 | %) | ||||||||
| Average monthly lease revenue per unit | $ | 385 | $ | 455 | $ | (70 | ) | (15.4 | %) | |||||
Vehicle rental revenue for the third quarter of 2004 increased 22.4%, due to a 25.9% increase in rental days totaling $80.0 million, partially offset by a 2.8% decrease in revenue per day totaling $10.7 million. Vehicle rental revenue grew by 17.1% from franchisee acquisitions and the opening of new locations and by 5.3% from same store growth.
Vehicle leasing revenue for the third quarter of 2004 decreased 41.0%, due to a 30.2% decrease in the average lease fleet totaling $12.7 million coupled with a 15.4% decrease in the average lease rate totaling $4.4 million. The decline in volume was due to fewer vehicles leased to franchisees, which is primarily attributable to the shift of several locations from franchised operations to corporate operations.
Fees and services revenue increased 6.6% due to additional revenues associated with Thrifty Rent-A-Car System, Inc. National Advertising Committee (“Thrifty National Ad”), which were $3.2 million and beginning April 1, 2004 are included in the Company’s consolidated results due to adopting FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” as amended in December 2003 (“FIN 46(R)”), an interpretation of Accounting Research Bulletin No. 51. This increase in fees and services revenue was primarily offset by lower revenues from franchisees due to the shift of several locations from franchised operations to corporate operations.
Other revenue decreased by $2.5 million primarily due to a decrease in the market value of investments in the Company’s deferred compensation and retirement plans of $2.0 million in the third quarter of 2004. This decreased revenue is attributable to mark to market valuation of the corresponding investments and is offset by a corresponding decrease in selling, general and administrative expenses and, therefore, has no impact on net income.
19
| Expenses | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended September 30, |
$ Increase/ | % Increase/ | ||||||||||||
| 2004 |
2003 |
(decrease) |
(decrease) |
|||||||||||
| (in millions) | ||||||||||||||
| Direct vehicle and operating | $ | 205.8 | $ | 148.1 | $ | 57.7 | 39.0 | % | ||||||
| Vehicle depreciation and lease charges, net | 88.0 | 110.8 | (22.8 | ) | (20.5 | %) | ||||||||
| Selling, general and administrative | 60.5 | 51.7 | 8.8 | 17.0 | % | |||||||||
| Interest expense, net of interest income | 26.3 | 24.8 | 1.5 | 6.1 | % | |||||||||
| Total expenses | $ | 380.6 | $ | 335.4 | $ | 45.2 | 13.5 | % | ||||||
Direct vehicle and operating expenses for the third quarter of 2004 increased $57.7 million, of which $36.4 million was due to higher fleet and transaction levels resulting primarily from the operation of additional corporate stores and increased rental demand. Personnel related expenses increased by $14.0 million, vehicle related costs by $7.8 million, facility and airport concession expenses by $8.4 million and commissions by $2.5 million. Additionally, the Company increased insurance reserves by $3.3 million during the quarter to reflect the current actuarial estimates attributable to negative developments in claims history. In the fourth quarter of 2003, the Company adopted Emerging Issues Task Force No. 02-16 “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor” (“EITF 02-16”) (see New Accounting Standards) which requires promotional incentives to be classified as a reduction to vehicle depreciation and lease charges, net, on a prospective basis rather than direct vehicle and operating expenses. Consequently, direct vehicle and operating expenses were reduced by $18.0 million during the third quarter of 2003, relating to promotional payments, which are classified as a reduction of vehicle depreciation expense in the third quarter of 2004. Direct vehicle and operating expenses were 48.9% of revenue for the third quarter of 2004, compared to 40.0% in the third quarter of 2003.
Net vehicle depreciation and lease charges for the third quarter of 2004 decreased $22.8 million, of which $21.3 million of the decrease was due to classifying promotional incentives as a reduction in vehicle depreciation and lease charges, net, under the guidance of EITF 02-16. These promotional incentives were previously recorded as a reduction to direct vehicle and operating expenses in 2003. Additionally, net vehicle gains on the disposal of non-program vehicles were $4.8 million for the third quarter of 2004 compared to a loss of $1.7 million for the third quarter of 2003, due to lower acquisition costs and to an improved used car market. Lease charges, for vehicles leased from third parties, increased $3.4 million due to an increase in the number of vehicles leased during the third quarter of 2004 and vehicle depreciation expenses increased $1.6 million due to an 8.7% increase in depreciable fleet, partially offset by a 6.5% decrease in average depreciation rate. Net vehicle depreciation expense and lease charges were 20.9% of revenue for the third quarter of 2004, compared to 29.9% in the third quarter of 2003.
Selling, general and administrative expenses for the third quarter of 2004 increased $8.8 million. The increase was due primarily to a $5.8 million increase in sales and marketing costs and a $2.3 million increase in personnel related costs that are primarily attributable to the increase in transaction volume. Additionally, an increase of $0.9 million in expenses related to performance based compensation plans and costs associated with Thrifty National Ad of $3.5 million, which are included in the Company’s consolidated results due to the adoption of FIN 46(R), contributed to the increase. These increases were partially offset by a decrease in the market value of investments in the Company’s deferred compensation and retirement plans of $2.0 million for the third quarter of 2004, which is offset in other revenue. Selling, general and administrative expenses were 14.4% of revenue for the third quarter of 2004, compared to 14.0% in the third quarter of 2003.
Net interest expense for the third quarter of 2004 increased $1.5 million due to higher interest rates and higher average vehicle debt. Net interest expense was 6.2% of revenue for the third quarter of 2004, compared to 6.6% in the third quarter of 2003.
20
The income tax provision for the third quarter of 2004 was $15.5 million. The effective income tax rate for the third quarter was 38.2% compared to 39.1% for the third quarter of 2003. This decrease in the effective tax rate was due primarily to higher Canadian pretax earnings in relationship to U.S. pretax earnings. The Company reports taxable income for the U.S. and Canada in separate tax jurisdictions and establishes provisions separately for each jurisdiction. On a separate, domestic basis, the U.S. effective tax rate approximates the statutory tax rate including the effect of state income taxes. However, no income tax benefit was recorded for Canadian losses in 2003 and forecasted losses in 2004, thus, increasing the consolidated effective tax rate compared to the U.S. effective tax rate.
Interim reporting requirements for applying separate, annual effective income tax rates to U.S. and Canadian operations, combined with the seasonal impact of Canadian operations, will cause significant variations in the Company’s quarterly consolidated effective income tax rates.
During the nine months ended September 30, 2004, business and leisure travel improved, which has resulted in an increase in rental demand. The Company’s revenue and profits increased during this period as compared to the same period last year, although revenue per day declined by 2.9% due to highly competitive industry conditions. The Company achieved strong same store revenue growth as well as strong revenue growth from franchisee acquisitions. Also, the Company achieved higher vehicle utilization and lower vehicle costs compared to the same period last year.
Operating Results
The Company had income of $77.5 million before income taxes and cumulative effect of a change in accounting principle for the nine months ended September 30, 2004, as compared to $49.0 million in the same period of 2003. The cumulative effect of the change in accounting principle was $3.7 million. This change in accounting principle relates to the adoption of FASB Interpretation No. 46(R) by the Company effective March 31, 2004 (see New Accounting Standards).
| Revenues | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nine Months Ended September 30, |
$ Increase/ | % Increase/ | ||||||||||||
| 2004 |
2003 |
(decrease) |
(decrease) |
|||||||||||
| (in millions) | ||||||||||||||
| Vehicle rentals | $ | 960.4 | $ | 750.8 | $ | 209.6 | 27.9 | % | ||||||
| Vehicle leasing | 63.2 | 120.5 | (57.3 | ) | (47.6 | %) | ||||||||
| Fees and services | 43.5 | 43.2 | 0.3 | 0.5 | % | |||||||||
| Other | 7.7 | 10.5 | (2.8 | ) | (25.9 | %) | ||||||||
| Total revenues | $ | 1,074.8 | $ | 925.0 | $ | 149.8 | 16.2 | % | ||||||
| Vehicle rental metrics: | ||||||||||||||
| Number of rental days | 24,059,740 | 18,268,664 | 5,791,076 | 31.7 | % | |||||||||
| Average revenue per day | $ | 39.92 | $ | 41.10 | $ | (1.18 | ) | (2.9 | %) | |||||
| Vehicle leasing metrics: | ||||||||||||||
| Average number of vehicles leased | 18,434 | 29,663 | (11,229 | ) | (37.9 | %) | ||||||||
| Average monthly lease revenue per unit | $ | 381 | $ | 451 | $ | (70 | ) | (15.5 | %) | |||||
Vehicle rental revenue for the nine months ended September 30, 2004 increased 27.9%, due to a 31.7% increase in rental days totaling $238.0 million, partially offset by a 2.9% decrease in revenue per day totaling $28.4 million. Vehicle rental revenue grew by 18.7% from franchisee acquisitions and the opening of new locations and by 9.2% from same store growth.
21
Vehicle leasing revenue for the nine months ended September 30, 2004 decreased 47.6%, due to a 37.9% decrease in the average lease fleet totaling $45.6 million coupled with a 15.5% decrease in the average lease rate totaling $11.7 million. The decline in volume was due to fewer vehicles leased to franchisees, which is primarily attributable to the shift of several locations from franchised operations to corporate operations.
Fees and services revenue increased 0.5% due to a $6.1 million increase in fees and services revenue associated with the consolidation of Thrifty National Ad resulting from the adoption of FIN 46(R). This increase was primarily offset by lower revenues received from franchisees as the result of a shift of several locations from franchised operations to corporate operations.
Other revenue decreased by $2.8 million primarily due to a decrease in the market value of investments in the Company’s deferred compensation and retirement plans of $2.2 million in 2004. This decreased revenue is attributable to mark to market valuation of the corresponding investments and is offset by a corresponding decrease in selling, general and administrative expenses and, therefore, has no impact on net income.
| Expenses | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nine Months Ended September 30, |
$ Increase/ | % Increase/ | ||||||||||||
| 2004 |
2003 |
(decrease) |
(decrease) |
|||||||||||
| (in millions) | ||||||||||||||
| Direct vehicle and operating | $ | 542.5 | $ | 368.1 | $ | 174.4 | 47.4 | % | ||||||
| Vehicle depreciation and lease charges, net | 222.0 | 299.9 | (77.9 | ) | (26.0 | %) | ||||||||
| Selling, general and administrative | 164.3 | 141.5 | 22.8 | 16.1 | % | |||||||||
| Interest expense, net of interest income | 68.5 | 66.6 | 1.9 | 3.0 | % | |||||||||
| Total expenses | $ | 997.3 | $ | 876.1 | $ | 121.2 | 13.8 | % | ||||||
Direct vehicle and operating expenses for the nine months ended September 30, 2004 increased $174.4 million, of which $118.7 million was primarily due to higher fleet and transaction levels resulting primarily from the operation of additional corporate stores and increased rental demand. Personnel related expenses increased by $43.8 million, vehicle related costs by $24.2 million, facility and airport concession expenses by $24.2 million and commissions by $9.5 million. In the fourth quarter of 2003, the Company adopted EITF 02-16 (see New Accounting Standards), which requires promotional incentives to be classified as a reduction to vehicle depreciation and lease charges, net, on a prospective basis rather than direct vehicle and operating expenses. Consequently, direct vehicle and operating expenses were reduced by $55.7 million in the nine months of 2003 relating to promotional payments, which are now classified as a reduction of vehicle depreciation expense in the nine months of 2004. Direct vehicle and operating expenses were 50.5% of revenue for the nine months ended September 30, 2004, compared to 39.8% in the same period in 2003.
Net vehicle depreciation and lease charges for the nine months ended September 30, 2004 decreased $77.9 million, of which $56.6 million of the decrease was due to classifying promotional incentives as a reduction in vehicle depreciation and lease charges, net, under the guidance of EITF 02-16. These promotional incentives were previously recorded as a reduction to direct vehicle and operating expenses in 2003. Additionally, net vehicle gains on the disposal of non-program vehicles were $17.8 million for the nine months ended September 30, 2004 compared to a loss of $2.7 million for the same period in 2003, due to lower acquisition costs and to an improved used car market. Vehicle depreciation expenses decreased $9.0 million due to an 8.9% decrease in the average depreciation rate for the nine months ended September 30, 2004 due to favorable manufacturer fleet programs, partially offset by a 6.3% increase in depreciable fleet. Lease charges, for vehicles leased from third parties, increased $8.2 million due to an increase in the number of vehicles leased during the nine months ended September 30, 2004. Net vehicle depreciation expense and lease charges were 20.6% of revenue for the nine months ended September 30, 2004, compared to 32.4% in the same period in 2003.
22
Selling, general and administrative expenses for the nine months ended September 30, 2004 increased $22.8 million. The increase was due primarily to an $11.7 million increase in sales and marketing costs and a $4.0 million increase in personnel related costs primarily attributable to the increase in transaction volume. Additionally, an increase of $4.6 million in expenses related to performance based compensation plans and costs associated with Thrifty National Ad of $6.4 million, which are included in the Company’s consolidated results due to the adoption of FIN 46(R) effective April 1, 2004, contributed to the increase. These increases were partially offset by a decrease in market value of investments in the Company’s deferred compensation and retirement plan of $2.2 million, which is offset in other revenue. Selling, general and administrative expenses were 15.3% of revenue for the nine months ended September 30, 2004 and 2003.
Net interest expense for the nine months ended September 30, 2004 increased $1.9 million due to an increase in the average vehicle debt, partially offset by lower interest rates. Net interest expense was 6.4% of revenue for the nine months ended September 30, 2004, compared to 7.2% in the same period in 2003.
The income tax provision for the nine months ended September 30, 2004 was $31.8 million. The effective income tax rate for the nine months ended September 30, 2004 was 41.0% compared to 42.2% for the same period in 2003. This decrease in the effective tax rate was due primarily to higher U.S. pretax earnings in relationship to Canadian pretax losses. The Company reports taxable income for the U.S. and Canada in separate tax jurisdictions and establishes provisions separately for each jurisdiction. On a separate, domestic basis, the U.S. effective tax rate approximates the statutory tax rate including the effect of state income taxes. However, no income tax benefit was recorded for Canadian losses in 2003 and forecasted losses in 2004, thus, increasing the consolidated effective tax rate compared to the U.S. effective tax rate.
Interim reporting requirements for applying separate, annual effective income tax rates to U.S. and Canadian operations, combined with the seasonal impact of Canadian operations, will cause significant variations in the Company’s quarterly consolidated effective income tax rates.
The Company expects continued growth in travel in the fourth quarter of 2004. Airline passenger enplanements, a key driver of vehicle rental demand, have increased from prior year levels. Vehicle rental pricing continues to be weak due to highly competitive industry conditions. The Company’s corporate operations should continue to benefit from franchisee acquisitions in 2004 and future periods. Leasing revenue is expected to continue to decline as a result of franchisee acquisitions. Our consolidated operating model and organizational structure is expected to provide increased efficiencies. The Company continues to make additional investments in improved IT systems, marketing initiatives and infrastructure to facilitate future growth.
The Company’s business is subject to seasonal variations in customer demand, with the summer vacation period representing the peak season for vehicle rentals. During the peak season, the Company increases its rental fleet and workforce to accommodate increased rental activity. As a result, any occurrence that disrupts travel patterns during the summer period could have a material adverse effect on the annual performance of the Company. The first and fourth quarters for the Company’s rental operations are generally the weakest, when there is limited leisure travel and a greater potential for adverse weather conditions. Many of the operating expenses such as rent, general insurance and administrative personnel are fixed and cannot be reduced during periods of decreased rental demand.
23
The Company’s primary uses of liquidity are for the purchase of vehicles for its rental and leasing fleets, non-vehicle capital expenditures, franchisee acquisitions and working capital. The Company also uses letters of credit or insurance bonds to secure certain commitments related to airport concession agreements, insurance programs, and for other purposes.
The Company’s primary sources of liquidity are cash generated from operations, secured vehicle financing, the Revolving Credit Facility (hereinafter defined) and insurance bonds. Cash generated by operating activities of $327.5 million for the nine months ended September 30, 2004, was primarily the result of net income, adjusted for depreciation. The liquidity necessary for purchasing vehicles was primarily obtained from secured vehicle financing, most of which is asset backed notes, sales proceeds from disposal of used vehicles and cash generated by operating activities. The asset backed notes require varying levels of credit enhancement or overcollateralization, which are provided by a combination of cash, vehicles and letters of credit. These letters of credit are provided under the Company’s Revolving Credit Facility.
The Company believes that its cash generated from operations, availability under its Revolving Credit Facility, insurance bonding programs and secured vehicle financing programs are adequate to meet its liquidity requirements for the foreseeable future. A significant portion of the secured vehicle financing consists of asset backed notes. The Company generally issues additional notes each year to replace maturing notes and provide for growth in its fleet. The Company believes the asset backed note market continues to be a viable source of vehicle financing.
Cash used in investing activities was $514.6 million. The principal use of cash in investing activities was the purchase of revenue-earning vehicles, which totaled $2.8 billion, partially offset by $2.1 billion in proceeds from the sale of used revenue-earning vehicles. The Company’s need for cash to finance vehicles is highly seasonal and typically peaks in the second and third quarters of the year when fleet levels build to meet seasonal rental demand. The Company expects to continue to fund its revenue-earning vehicles with cash provided from operations and increased secured vehicle financing. The Company also used cash for non-vehicle capital expenditures of $18.2 million. These expenditures consist primarily of airport rental facility improvements and investments in information technology equipment and systems. The Company also used $50.2 million of cash, net of assets acquired and liabilities assumed, for franchisee acquisitions. These expenditures were financed with cash provided from operations. At September 30, 2004, restricted cash and investments totaled $283.7 million, decreasing $252.8 million for the nine months ended September 30, 2004 due to increasing the rental fleet. Restricted cash and investments are restricted for the acquisition of revenue-earning vehicles and other specified uses as defined under the asset backed note program, the Canadian fleet securitization program and a like-kind exchange program.
Cash provided by financing activities was $194.5 million primarily due to the issuance of an additional $500.0 million in asset backed notes and a $75.0 million increase in the Conduit Facility, partially offset by the maturity of asset backed notes totaling $182.4 million, a $209.1 million decrease in commercial paper, and stock repurchases totaling $11.7 million under the stock repurchase program.
The Company has significant requirements for bonds and letters of credit to support its insurance programs and airport concession commitments. At September 30, 2004, the insurance companies had issued approximately $43.9 million in bonds to secure these obligations.
Asset Backed Notes
The asset backed note program at September 30, 2004 was comprised of $1.80 billion in asset backed notes with maturities ranging from 2004 to 2008. Borrowings under the asset backed notes are secured by eligible vehicle collateral. Asset backed notes totaling $1.61 billion bear interest at fixed rates ranging from 3.64% to 7.10%, including certain floating rate notes swapped to fixed rates. Asset backed notes totaling $186.1 million bear interest at floating rates ranging from LIBOR plus 0.64% to LIBOR plus 1.05%. On May 5, 2004, RCFC issued an additional $500 million of floating rate asset backed notes with a term of four years. In conjunction with the asset backed note issuance, the Company also entered into interest rate swap agreements to convert this floating rate debt to fixed rate debt.
24
Conduit Facility
Effective April 1, 2004, the Conduit Facility was renewed for another 364-day period and increased to $350 million from $275 million.
Commercial Paper Program and Liquidity Facility
On April 1, 2004, the Company renewed its commercial paper program (the “Commercial Paper Program”) for another 364-day period at a maximum size of $594 million backed by a renewal of the Liquidity Facility in the amount of $520 million. At September 30, 2004, the Company had $145.6 million in commercial paper outstanding under the Commercial Paper Program.
Vehicle Debt and Obligations
Vehicle manufacturer and bank lines of credit provided $406.8 million in capacity at September 30, 2004. The Company had $204.0 million in borrowings outstanding under these lines at September 30, 2004. All lines of credit are collateralized by the related vehicles.
The Company finances its Canadian vehicle fleet through a fleet securitization program. Under this program, DTG Canada can obtain vehicle financing funded through a bank commercial paper conduit. On April 30, 2004, the Company extended the Canadian fleet securitization program to December 31, 2005 and increased the capacity from CND $200 million to CND $235 million. At September 30, 2004, DTG Canada had approximately CND $199.1 million (US $157.9 million) funded under this program.
Revolving Credit Facility
Effective April 1, 2004, the Company renewed the $215 million five-year, senior secured, Revolving Credit Facility, increasing the capacity to $300 million and extending the expiration date to April 1, 2009 (the “Revolving Credit Facility”). The Revolving Credit Facility is used to provide working capital borrowings and letters of credit. The Revolving Credit Facility permits letter of credit usage up to $300 million and working capital borrowing up to $100 million. In addition to the renewal, certain financial covenants were removed. The availability of funds under the Revolving Credit Facility is subject to the Company’s compliance with certain covenants, including a covenant that sets the maximum amount the Company can spend annually on the acquisition of non-vehicle capital assets, and certain financial covenants including a maximum leverage ratio, a minimum fixed charge coverage ratio and the restriction of cash dividends and share repurchases. The Company had letters of credit outstanding under the Revolving Credit Facility of approximately $164.5 million and no working capital borrowings at September 30, 2004.
EITF 02-16 “Accounting by a Customer (Including a Reseller) for Certain Considerations Received from a Vendor”, is applicable for the Company in relation to accounting for purchase and promotional incentives. Under EITF 02-16, the Company began accounting for these promotional payments received as a reduction of the cost of the vehicles when acquired and recognized over the lives of the vehicles as a reduction of depreciation expense. Previously, these payments were recognized on a straight-line basis as a reduction of direct vehicle and operating expenses. The Company adopted EITF 02-16 in the fourth quarter of 2003 due to an amendment to the Company’s vehicle supply agreement.
25
In January 2003, the FASB issued “Consolidation of Variable Interest Entities,” as amended in December 2003 (“FIN 46(R)”), an interpretation of Accounting Research Bulletin No. 51. FIN 46(R) requires existing unconsolidated variable interest entities (“VIE’s”) to be consolidated by their primary beneficiaries if that company is subject to a majority of the risk of loss, if any, from the VIE’s activities, or entitled to receive a majority of the entity’s residual returns, or both. The Company believes that its involvement with Thrifty National Ad qualifies Thrifty National Ad as a VIE with the Company representing the primary beneficiary. Consequently, Thrifty National Ad has been consolidated in the Company’s financial statements for the quarter ended March 31, 2004. The fair value of the net assets of Thrifty National Ad of approximately $3.7 million at March 31, 2004, was recorded as a cumulative effect of a change in accounting principle in the Company’s condensed consolidated statements of income. Beginning April 1, 2004, the Company began consolidating the operating results of Thrifty National Ad with its operating results. Thrifty National Ad is established for the limited purpose of collecting and disbursing funds for advertising and promotion programs for the benefit of the Thrifty Car Rental corporate and franchisee network. Thrifty National Ad files its tax returns under the provisions applicable to a trust. Accordingly, there is no tax effect on the cumulative effect of the change in accounting principle. The Company’s estimated maximum exposure to loss as a result of its continuing involvement with Thrifty National Ad is expected to be minimal as expenditures are managed by Thrifty National Ad based on receipts. The Company also evaluated its franchisee network as potential VIE’s subject to possible consolidation. The Company determined that its franchisees met the FIN 46(R) definition of a business; however, the Company did not provide more than half of each franchisee’s equity or other financial support, among other qualifying conditions. Therefore, the Company believes that its franchisees do not qualify as VIE’s under FIN 46(R) and are not required to be consolidated into the Company’s financial statements.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The following information about the Company’s market sensitive financial instruments constitutes a “forward-looking” statement. The Company’s primary market risk exposure is changing interest rates, primarily in the United States. The Company manages interest rates through use of a combination of fixed and floating rate debt and interest rate swap agreements. All items described are non-trading and are stated in U.S. dollars. Because a portion of the Company’s debt is denominated in Canadian dollars, its carrying value is impacted by exchange rate fluctuations. However, this foreign currency risk is mitigated by the underlying collateral which is the Canadian fleet. The fair value of the interest rate swaps is calculated using projected market interest rates over the term of the related debt instruments as provided by the counter parties.
Based on the Company’s level of floating rate debt (excluding notes with floating interest rates swapped into fixed rates) at September 30, 2004, a 50 basis point fluctuation in interest rates would have an approximate $5 million impact on the Company’s expected pretax income on an annual basis. This impact on pretax income would be reduced by earnings from cash and cash equivalents and restricted cash and investments, which are invested on a short-term basis and subject to fluctuations in interest rates. At September 30, 2004, cash and cash equivalents totaled $199.4 million and restricted cash and investments totaled $283.7 million. The Company estimates that, for 2004, approximately 45% of its average debt will bear interest at floating rates.
At September 30, 2004, there were no significant changes in the Company’s quantitative disclosures about market risk compared to December 31, 2003, which is included under Item 7A of the Company’s most recent Form 10-K, except for the addition of the derivative financial instrument noted in Note 8 to the condensed consolidated financial statements.
| ITEM 4. | CONTROLS AND PROCEDURES |
a) Evaluation of disclosure controls and procedures
| The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, |
26
| processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms. The disclosure controls and procedures are also designed with the objective of ensuring such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing the disclosure controls and procedures, the Company’s management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. |
| As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the quarter covered by this report. Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective at a reasonable assurance level. |
b) Changes in internal controls
| During 2004, the Company is undergoing system conversions affecting certain financial systems. Additionally, the Company has implemented changes to certain internal controls and processes which will continue throughout 2004 as the system conversions are completed. The Company does not believe there are any material weaknesses in internal controls due to these changes. The Company will continue to monitor internal controls to ensure their effectiveness. |
| ITEM 1. | LEGAL PROCEEDINGS |
Various legal actions, claims and governmental inquiries and proceedings are pending or may be instituted or asserted in the future against the Company and its subsidiaries. Litigation is subject to many uncertainties, and the outcome of the individual litigated matters is not predictable with assurance. It is possible that certain of the actions, claims, inquiries or proceedings could be decided unfavorably to the Company or the subsidiaries involved. Although the amount of liability with respect to these matters cannot be ascertained, potential liability is not expected to materially affect the consolidated financial position or results of operations of the Company.
27
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
| Period | Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Dollar Value of Shares that may yet be Purchased under the Plans or Programs |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| July 1, 2004 - | ||||||||||||||
| July 31, 2004 | - | $ - | - | $ | 16,627,000 | |||||||||
| August 1, 2004 - | ||||||||||||||
| August 31, 2004 | 107,100 | $ 24.11 | 107,100 | $ | 14,046,000 | |||||||||
| September 1, 2004 - | ||||||||||||||
| September 30, 2004 | 63,800 | $ 24.71 | 63,800 | $ | 12,469,000 | |||||||||
| Total | 170,900 | 170,900 | ||||||||||||
On July 30, 2003, the Company announced that its Board of Directors had authorized a stock repurchase program which allows the repurchase of up to $30 million of the Company’s stock in the open market or in privately negotiated transactions to conclude no later than the third quarter of 2005.
| ITEM 5. | OTHER INFORMATION |
The Company has established the date for its next Annual Meeting of Stockholders, which will be held on May 20, 2005.
| ITEM 6. | EXHIBITS |
| Exhibit 10.37 | Form of Restricted Stock Grant Agreement between Dollar Thrifty Automotive Group, Inc. and the applicable director |
| Exhibit 10.38 | Dollar Thrifty Automotive Group, Inc. Retirement Savings Plan under the Bank of Oklahoma N.A. Defined Contribution Prototype Plan & Trust, as adopted by the Company pursuant to the Adoption Agreement (Exhibit 10.39) |
| Exhibit 10.39 | Adoption Agreement #005 Nonstandardized 401(k) Profit Sharing Plan |
| Exhibit 15.15 | Letter from Deloitte & Touche LLP regarding interim financial information |
| Exhibit 31.13 | Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| Exhibit 31.14 | Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| Exhibit 32.13 | Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| Exhibit 32.14 | Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
28
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. |
| November 4, 2004 | By: | /s/ GARY L. PAXTON | |
| Gary L. Paxton | |||
| President, Chief Executive Officer and Principal Executive Officer |
|||
| November 4, 2004 | By: | /s/ STEVEN B. HILDEBRAND | |
| Steven B. Hildebrand | |||
| Senior Executive Vice President, Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer |
29