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Dollar Thrifty Automotive Group Inc – ‘10-Q’ for 9/30/06

On:  Wednesday, 11/8/06, at 4:39pm ET   ·   For:  9/30/06   ·   Accession #:  1049108-6-393   ·   File #:  1-13647

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11/08/06  Dollar Thrifty Automotive Gp Inc  10-Q        9/30/06    7:2.8M

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    492K 
 2: EX-10       Material Contract                                   HTML   1.03M 
 3: EX-15       Letter re: Unaudited Interim Financial Information  HTML      9K 
 4: EX-31       Certification per Sarbanes-Oxley Act (Section 302)  HTML     15K 
 5: EX-31       Certification per Sarbanes-Oxley Act (Section 302)  HTML     15K 
 6: EX-32       Certification per Sarbanes-Oxley Act (Section 906)  HTML      9K 
 7: EX-32       Certification per Sarbanes-Oxley Act (Section 906)  HTML      9K 

FORM 10-Q

                                                               For the quarterly period ended September 30, 2006

OR

For the transition period from______________to______________

Commission file number 1-13647

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.

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       

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act:

      Large accelerated filer  X       Accelerated filer          Non-accelerated filer      

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):   Yes         No   X   

The number of shares outstanding of the registrant’s Common Stock as of October 31, 2006 was 23,868,151.

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
FORM 10-Q

CONTENTS

FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

Table of Contents

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; access to reservation distribution channels; 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

Table of Contents

PART I – FINANCIAL INFORMATION

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2006, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2006 and 2005, and cash flows for the nine-month periods ended September 30, 2006 and 2005. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the 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 the 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, 2005, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for the year then ended (not presented herein); and in our report dated March 14, 2006, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

Tulsa, Oklahoma

November 8, 2006

3

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements.

4

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements.

5

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

6

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements.

7

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

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”). 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 14, 2006 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.

Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”) using the modified prospective application transition method. SFAS No. 123(R) revises SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). The Company previously adopted the fair value based method of recording stock options consistent with SFAS No. 123 and accounted for the change in accounting principle using the prospective method in accordance with SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”, an amendment of SFAS No. 123. Under the prospective method, the Company expensed all stock based compensation granted since January 1, 2003 over the vesting period based on the fair value at the date of grant. The fair value recognition provisions of SFAS No. 123 and SFAS No. 123(R) are materially consistent; therefore, the adoption of SFAS No. 123(R) did not have a material impact on the Company’s condensed consolidated statements of financial condition, results of operations or cash flows.

SFAS No. 123(R) requires the Company to estimate forfeitures in calculating the expense relating to share-based compensation as opposed to recognizing these forfeitures and the corresponding reduction in expense as they occur, as was allowed under SFAS No. 123.

8

Long-Term Incentive Plan

The Company has a long-term incentive plan and director equity plan (“LTIP”) for employees and non-employee directors under which the Human Resources and Compensation Committee of the Board of Directors of the Company (the “Committee”) is authorized to provide for grants in the form of incentive option rights, non-qualified option rights, tandem appreciation rights, free-standing appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other awards to key employees and non-employee directors that may be payable or related to common stock or factors that may influence the value of common stock. At September 30, 2006, the Company’s common stock authorized for issuance under the LTIP was 2,168,390 shares. The Company has 181,434 shares available for future LTIP awards at September 30, 2006 after reserving for the maximum potential shares that could be awarded under existing LTIP grants. The Company issues new shares to satisfy LTIP awards.

Compensation cost for performance shares and restricted stock awards is recognized based on the fair value of the awards granted at the grant-date. The Company recognized compensation costs of $3.5 million and $10.9 million during the three months and nine months ended September 30, 2006, respectively, and $1.7 million and $4.3 million during the three months and nine months ended September 30, 2005, respectively, for such awards. The increase in compensation costs for the nine months ended September 30, 2006 included $2.2 million related to a change in estimate for the final calculation of the vested 2003 performance share awards paid in 2006, $2.9 million for higher costs related to the 2006 performance share awards, and $1.5 million to reflect current performance estimates.

Option Rights Plan – Under the LTIP, the Committee may grant non-qualified option rights to key employees and non-employee directors. The exercise prices for non-qualified option rights are equal to the fair market value of the Company’s common stock at the date of grant, except for the initial grant, which was made at the initial public offering price. The fair market value for each award is estimated using a Black-Scholes option valuation. The non-qualified option rights generally vest in three equal annual installments commencing on the first anniversary of the grant-date and have a term not exceeding ten years from the date of grant. The maximum number of shares for which option rights may be granted under the LTIP to any participant during any calendar year is 285,000.

As of the end of 2004, all stock option rights were fully vested. Therefore, the disclosure of the pro forma results as if the fair value-based method of SFAS No. 123 had been applied is not required for the nine months ended September 30, 2005. The Company has not granted stock option rights since January 1, 2003.

The following table sets forth the non-qualified option rights activity under the LTIP for the nine months ended September 30, 2006:

9

The total intrinsic value of options exercised during the three months and nine months ended September 30, 2006 was $2.7 million and $9.6 million, respectively, and during the three months and nine months ended September 30, 2005 was $0.2 million and $15.1 million, respectively. Total cash received for non-qualified option rights exercised during the nine months ended September 30, 2006 and 2005 totaled $6.1 million and $16.9 million, respectively.

The following table summarizes information regarding fixed non-qualified option rights that were outstanding at September 30, 2006:

Performance Shares – Performance shares are granted to Company officers and certain key employees. The awards granted in 2006, 2005 and 2004 established a target number of shares that generally vest at the end of a three year requisite service period following the grant-date. The number of performance shares ultimately earned will range from zero to 200% of the target award, depending on the level of corporate performance over each of the three years, which is considered the performance period. For the awards granted in 2006, the expense related to performance shares is based on a market based condition as defined in SFAS No. 123(R) for 50% of the target award and on defined performance indicators for the other 50% of the target award. The grant-date fair value for the performance indicator portion of the award was based on the closing market price of the Company’s common shares at the date of grant. The market condition based portion of the award was estimated on the date of grant using a lattice-based option valuation model and the assumptions noted in the following table:

The target awards granted in 2005 and 2004 were valued at the closing market price of the Company’s common shares at the date of grant.

10

Performance shares earned are delivered based upon vesting of the grant, provided the grantee is then employed by the Company. For instances of retirement, involuntary termination without cause, disability or death, performance share awards vest on a pro-rata basis at 100% of target, but will not be issued until the end of the performance period or earlier, if needed to comply with the Internal Revenue Code Section 409A. Any performance share installments not earned at the end of the requisite service period are forfeited. The following table presents the status of the Company’s nonvested performance shares as of September 30, 2006 and any changes during the nine months ended September 30, 2006: