10-K 1 annualreport2002.htm ye200210k

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K


x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		For the fiscal year ended December 31, 2002


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		For the transition period from_______________to_______________

Commission File Number 1-13647

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.

(Exact name of registrant as specified in its charter)


Delaware (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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class: Common Stock, $.01 par value		Name of each exchange on which registered: New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act): Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 28, 2002, the last business day of the registrant's most recently completed second fiscal quarter was $537,851,210.

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of February 28, 2003 was $401,881,714.

The number of shares outstanding of the registrant’s Common Stock as of February 28, 2003 was 24,671,895.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 29, 2003, are incorporated by reference in Part III.

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DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.

FORM 10-K

TABLE OF CONTENTS



PART I

ITEM 1.

BUSINESS

4

ITEM 2.

PROPERTIES

21

ITEM 3.

LEGAL PROCEEDINGS

21

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

22

PART II

ITEM 5.

MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

23

ITEM 6.

SELECTED FINANCIAL DATA

24

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION

26

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

37

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

38

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

68

PART III

ITEM 10.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

68

ITEM 11.

EXECUTIVE COMPENSATION

68

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS

68

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

68

ITEM 14.

CONTROLS AND PROCEDURES

68

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DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.

FORM 10-K

TABLE OF CONTENTS (Continued)



PART IV

                      ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K

69

SIGNATURES

85

CERTIFICATIONS

86

INDEX TO EXHIBITS

88

FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

Some of the statements contained herein under “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Dollar Thrifty Automotive Group, Inc. believes such forward-looking statements are based 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 our companies’ customers reside and where our companies and their franchisees operate; airline travel patterns; changes in capital availability or cost; costs and other terms related to the acquisition and disposition of automobiles; costs of conducting business and changes in structure or operations; and certain regulatory and environmental matters. 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.

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PART I

ITEM 1. BUSINESS

Company Overview

General

Dollar Thrifty Automotive Group, Inc., a Delaware corporation ("DTG"), owns Dollar Rent A Car Systems, Inc. and Thrifty, Inc. Thrifty, Inc. owns Thrifty Rent-A-Car System, Inc. and Thrifty Car Sales, Inc., which operates a franchised retail used car sales network. Dollar Rent A Car Systems, Inc., which was renamed DTG Operations, Inc. on December 2, 2002, and Dollar Rent A Car, Inc., a newly-formed subsidiary of DTG, are individually or collectively, as the context requires, referred to hereafter as "Dollar". Thrifty, Inc., Thrifty Rent-A-Car System, Inc., Thrifty Car Sales, Inc. and all their respective subsidiaries are individually or collectively, as the context requires, referred to hereafter as "Thrifty". DTG, Dollar and Thrifty and each of their subsidiaries are individually or collectively referred to herein as the "Company", as the context may require. The Company has two additional subsidiaries, Rental Car Finance Corp. and Dollar Thrifty Funding Corp., which are special purpose financing entities and have been appropriately consolidated in the financial statements of the Company. Dollar and Thrifty and their respective independent franchisees operate the Dollar and Thrifty vehicle rental systems. The Dollar and Thrifty brands represent a value-priced rental vehicle generally appealing to leisure customers, including foreign tourists, and to small businesses and independent business travelers. As of December 31, 2002, Dollar and Thrifty had 803 locations in the United States and Canada of which 224 were company-owned stores and 579 were locations operated by franchisees. While Dollar and Thrifty have franchisees in countries outside the United States and Canada, revenues from these franchisees have not been material to results of operations of the Company. For the year ended December 31, 2002, Dollar's gross revenues comprised approximately 71% of the Company's revenues with Thrifty contributing the remaining 29% of revenues.

In the United States, Dollar’s main focus is operating company-owned stores located in major airports, and it derives substantial revenues from leisure and tour package rentals. Thrifty primarily operates through franchisees serving both the airport and local markets. Dollar derives a majority of its U.S. revenues from providing rental vehicles and services directly to rental customers, while Thrifty derives its revenues primarily from franchising fees and services including vehicle leasing. However, as part of a new strategy, beginning in 2001 and continuing in 2002, Thrifty began operating stores that were previously operated by franchisees. Thrifty does not plan to offer its corporate stores in large airport markets for refranchising. Thrifty’s U.S. franchisees provide vehicles and services to the rental customer except in ten cities where Thrifty operated company-owned stores at December 31, 2002. Dollar and Thrifty incur the costs of operating company-owned stores and their revenues are directly affected by changes in rental demand and pricing. See Note 17 of Notes to Consolidated Financial Statements for business segment information.

The Company is the successor to Pentastar Transportation Group, Inc., which was formed in 1989 to acquire and operate the rental car subsidiaries of Chrysler Corporation, now known as DaimlerChrysler Corporation (such entity and its subsidiaries and members of its affiliated group are hereinafter referred to as "DaimlerChrysler"). Dollar Rent A Car Systems, Inc. was incorporated in 1965. Thrifty Rent-A-Car System, Inc. was incorporated in 1950 and Dollar Rent A Car, Inc. was incorporated in December 2002. Thrifty, Inc., which was formed in December 1998, directly owns Thrifty Rent-A-Car System, Inc. and Thrifty Car Sales, Inc. ("Thrifty Car Sales").

On December 23, 1997, the Company completed its initial public offering of Common Stock (the “Offering”) after registration with the Securities and Exchange Commission (“SEC”) on Form S-1. Upon closing of the Offering, 24,123,105 shares of Common Stock were sold at an initial price of $20.50 per share. Of the shares sold in the Offering, 20,000,000 shares were sold by DaimlerChrysler, which prior to the Offering was the parent of the Company, and 4,123,105 shares were sold by the Company.

In connection with the Offering, the Company completed new financing arrangements. On December 23, 1997, the Company closed a $900 million asset backed medium term note program, together with a Revolving Credit Facility (hereinafter defined). In addition, on March 4, 1998, the Company established a Commercial Paper Program (hereinafter defined) backed by a Liquidity Facility (hereinafter defined). Proceeds of the medium term notes, including issues in 1999,

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2001 and 2002, a variable funding note issue in 2000, and proceeds from the Commercial Paper Program are each utilized to finance vehicles used by Dollar and Thrifty for their operations. The Revolving Credit Facility was established to provide letters of credit for financing and operational needs and to meet the Company’s borrowing needs for its other business operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources.”

Recent Developments

In December 2002, the Company announced a new corporate operating structure which became effective on January 1, 2003. This new structure will realign the Company from a brand structure to a functional structure, combining the management of operations and administrative functions for both Dollar and Thrifty brands. This new structure will facilitate additional cost savings and synergies between the two brands and provide a platform for cost avoidance going forward.

Under the new operating structure, DTG Operations, Inc. will operate company stores, provide vehicle leasing to franchisees and operate reservation centers for both brands. Thrifty Rent-A-Car System, Inc. and Dollar Rent A Car, Inc., a newly-formed corporation, will manage franchising activities and sales and marketing activities for their respective brands.

Prior to January 1, 2003, all operations, including operating company stores and reservation centers, leasing vehicles to franchisees, managing franchising activities and sales and marketing, were handled by Dollar Rent A Car Systems, Inc. and Thrifty Rent-A-Car System, Inc., for their respective brands. Information discussed in the “Business” section of this report does not reflect this new structure as it was not in effect until January 1, 2003.

Available Information

The Company makes available free of charge on or through its Internet website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such material has been electronically filed with, or furnished to, the SEC. The Company’s Internet address is http://www.dtag.com. The SEC also maintains a web site that contains all of the Company’s filings at http://www.sec.gov.

Industry Overview

The U.S. daily vehicle rental industry has two principal markets: the airport market and the local market. Vehicle rental companies that focus on the airport market rent primarily to business and leisure travelers. Vehicle rentals from airport locations account for the largest portion of vehicle rentals in the United States. Companies focusing on the local market rent primarily to persons who need a vehicle periodically for personal or business use or who require a temporary replacement vehicle. Rental companies also sell used vehicles and ancillary products such as refueling services and loss damage waivers to vehicle renters.

Vehicle rental companies typically incur substantial debt to finance the ongoing turnover of their rental fleets. They also typically acquire a majority of their fleets under manufacturer residual value programs that repurchase or guarantee the resale value of Program Vehicles (hereinafter defined) at particular times in the future. This allows a rental company to determine in advance this important element of its cost structure. The Program Vehicles and the related obligations of the manufacturers are used as collateral for fleet financing.

The rental car industry has experienced significant changes in ownership in the past several years. In the mid-1990s, most major rental car companies were owned by domestic automobile manufacturers. Ford Motor Company (“Ford”) owned both Hertz and Budget, General Motors Corporation owned National and DaimlerChrysler owned both Dollar and Thrifty. Since that time, these companies have become principally publicly traded companies focused more on profitability. The industry has also consolidated the ownership of brands with six of the top eight brands now owned by just three companies. Ford re-acquired all public ownership of Hertz in 2001, ANC Rental Corporation (currently operating under bankruptcy court protection pursuant to Chapter 11 of the U.S. Bankruptcy Code), which owns both Alamo and National is publicly owned, Enterprise remains privately held and Budget and Avis are operating subsidiaries of Cendant Corporation.

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Prior to 2001, the car rental industry had experienced steady growth over the last decade driven by increased leisure and business airline passenger traffic and additional capacity in the hotel industry. During 2001, however, the travel industry suffered from the effects of an economic recession as well as the terrorist attacks of September 11. In the aftermath of September 11, airline passenger traffic dropped significantly from the prior year and car rental companies reduced their fleet size in response to lower levels of demand. In 2002, average airline passenger enplanements continued to be down approximately 12-14% from 2000 levels; however, pricing improved on average approximately 6-8%, significantly improving profitability for most car rental companies. The future growth of the car rental industry will be determined by general economic conditions and developments in the travel industry. The outlook for the travel industry continues to be uncertain early in 2003.

In the fourth quarter of 2002, vehicle manufacturers accelerated deliveries to fleet customers, including car rental companies, which resulted in weakness in pricing early in 2003.

Seasonality

The Company’s business is subject to seasonal variations in customer demand, with the summer vacation period representing the peak season for vehicle rentals. This general seasonal variation in demand, along with more localized changes in demand, causes the Company to vary its fleet size over the course of the year. In 2002, the Company’s average monthly fleet size ranged from a low of approximately 73,000 vehicles in the first quarter to a high of approximately 127,000 vehicles in the third quarter.

Dollar

General

Dollar’s focus is serving the airport vehicle rental market, which is composed of business and leisure travelers. The majority of its locations are on or near airport facilities. At December 31, 2002, Dollar had 97 company-owned and franchised in-terminal locations. Dollar operates primarily through company-owned stores in the United States and also licenses to independent franchisees the right to operate as a part of the Dollar system in the United States and abroad. At December 31, 2002 all of its Canadian and international operations were franchised. In January 2003, Dollar re-acquired the master franchise rights to the Dollar brand for all of Canada.

Dollar’s services and products include fleet leasing, marketing, centralized reservations, counter automation, insurance, central billing, supplies, training and operational support. Dollar’s company-owned stores and franchisees rent vehicles on a daily, weekend, weekly and monthly basis, at varying rates depending on cost and other competitive factors in each location’s market. In addition to vehicle rentals, Dollar and its franchisees sell ancillary products and rent supplemental equipment.

As of December 31, 2002, Dollar’s vehicle rental system included 267 locations in the United States and Canada, consisting of 138 company-owned stores and 129 that were operated by franchisees. The Dollar system also included 115 locations abroad, all of which were franchised locations. Dollar’s total revenue was $809 million in 2002, of which $783 million (97%) was generated by company-owned stores, and $26 million (3%) was revenue from Dollar franchisees for vehicle leasing fees and other service and product fees and other revenue. Dollar’s revenues from outside the United States and Canada were less than 1% of 2002 total revenue.

Dollar operates primarily through company-owned stores and through franchisees in key U.S. leisure destinations and in other U.S. locations. Dollar has company-owned stores in 53 of the 75 largest U.S. airport markets and franchisees in all but two of the remaining markets. When opportunities arise, Dollar may acquire operations from franchisees and convert them to company-owned stores. Dollar converted three franchised operations to company-owned operations in 2000 and one in 2002. In April 2002, Dollar acquired previously franchised Louisville, Kentucky and will continue to pursue opportunities in 2003. Dollar generally has the right of first refusal on the sale of a franchised operation. Consistent with its strategy of operating corporately in the top 75 airports and other key markets, company-owned stores located in the smaller markets may be franchised in order to grow Dollar’s franchisee system.

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Company-Owned Stores

Dollar believes that having company-owned stores in most of the top 75 airport markets and other key markets enhances its ability to manage its vehicle rental system and fleet. Dollar can implement marketing and pricing strategies to focus on leisure and business travelers, reduce costs through bulk purchasing, apply performance benchmarks and develop and implement best practice management techniques nationwide. Its company-owned store network also allows Dollar to offer customers one-way rentals in certain markets.

Dollar has significant relationships with foreign and domestic tour operators which generated rental revenue of $177 million, or 22%, of Dollar’s total rental revenues in 2002. These rentals are usually part of tour packages that also include air travel and hotel accommodations. Rentals to tour customers have certain advantages. Tour customers tend to reserve vehicles earlier than other customers, rent them for longer periods and cancel reservations less frequently.

Dollar is the exclusive U.S. vehicle rental company for all five of its largest tour operator accounts. The agreements for these five accounts expire from December 2003 to December 2009. No single tour operator account generated in excess of 5% of the Company’s 2002 revenues.

As of December 31, 2002, Dollar had vehicle rental concessions for company-owned stores at 72 airports in the United States. Its payments for these concessions are usually based upon a specified percentage of airport-generated revenue, subject to a minimum annual fee, and typically include fixed rent for terminal counters or other leased properties and facilities.

Services and Products Provided to Rental Customers

Worldwide Reservations System. Dollar has continuously staffed reservation facilities at its headquarters in Tulsa, Oklahoma and at its facility in Tahlequah, Oklahoma. Dollar’s reservation facilities are linked to all major airline reservation systems and through such systems to travel agencies in the United States, Canada and abroad. The Internet is an important source of reservations for Dollar. In 2002, 44% of Dollar’s non-tour reservations came through the Internet. Dollar’s Internet web site, (dollar.com), provided approximately 19% of Dollar’s non-tour reservations booked for the year.

Supplemental Equipment and Optional Products. Dollar rents ski racks, baby seats and other supplemental equipment and, subject to availability and applicable local law, makes available loss damage waivers and insurance products related to the vehicle rental.

Instant Return. Dollar offers customers instant return service at most of its U.S. airport company-owned stores. When a customer returns a vehicle at one of these locations, a representative meets the customer and provides a receipt from a hand-held computer terminal.

Information Systems

Dollar depends upon a number of core information systems to operate its business, primarily its counter automation, reservations and revenue management systems. The counter automation system in Dollar’s company-owned stores processes rental transactions, facilitates the sale of additional products and services and allows Dollar to monitor its fleet and financial assets. In 1998, Dollar developed a revenue management system with Manugistics Group, Inc. (formerly Talus), a leading supplier of such systems, which is utilized by all of Dollar’s company-owned stores. The system is designed to enable Dollar to better determine rental demand based on historical reservation patterns and adjust its rental rates accordingly.

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In 1997, Dollar entered into an agreement with The Sabre Group, Inc., a leading global information technology service company, to manage and monitor its data center network and its daily information processing, which agreement was later transferred to EDS Information Systems, L.L.C. (“EDS”). All of Dollar’s key systems are housed in a secure underground EDS facility in Oklahoma designed to withstand disasters.

Customer Service and Employee Training

Dollar has programs at its headquarters and in company-owned stores to improve customer service. Customer First!, Dollar’s quality improvement program, involves customer satisfaction training and team-based problem solving, especially as it relates to improving customer service. Dollar’s customer service center measures customer satisfaction, tracks service quality trends, responds to customer inquiries and provides recommendations to Dollar’s senior management and vehicle rental location supervisors. Dollar conducts initial and ongoing training for company-owned store and franchisee employees through education centers in Tulsa, Newark, Los Angeles, Cleveland, Honolulu and Oakland. Training for newly hired rental employees is performed at individual work sites using computer based training materials.

Orlando Operations

Central Florida, with its many tourist attractions, is the most important leisure destination for Dollar. Dollar’s company-owned store at Orlando International Airport has a mix of tour and retail business. Dollar also operates a facility at the Orlando Sanford International Airport, 25 miles north of Orlando, which mainly serves charter flights by international tour operators.

Franchising

United States and Canada

Approximately 3% of Dollar’s 2002 revenues in the United States and Canada consisted of leasing revenue and fees from its franchisees and other revenues. Dollar sells its U.S. franchises on an exclusive basis for specific geographic areas. Most franchisees are located at or near airports that generate a lower volume of vehicle rentals than the airports served by Dollar’s company-owned stores. Dollar also makes a fleet leasing program available to its U.S. franchisees, which in 2002 accounted for approximately 1% of Dollar’s total revenue. See “Fleet Acquisition and Management — Fleet Leasing Programs.” In Canada, Dollar’s master franchisee directly operates or sub-franchises 22 airport and suburban locations. In January 2003, Dollar re-acquired the master franchise rights to the Dollar brand for all of Canada.

Dollar licenses its franchisees to use Dollar’s service marks in the vehicle rental and leasing business. Franchisees pay Dollar an initial franchise fee generally based on the population, number of airline passengers, total airport vehicle rental revenues and the level of any other vehicle rental activity in the franchised territory, as well as other factors.

System Fees. In addition to an initial franchise fee, each U.S. franchisee is generally required to pay Dollar a system fee on their rental car revenue equal to 8% of gross rental revenue on a monthly basis for airport operations and 6% for suburban operations.

Franchisee Services and Products. Dollar makes insurance coverage available to its franchisees and provides them with training and operational assistance, site selection guidance, vehicle damage recovery and claims management advice, sales assistance and image and standards requirements. Dollar also provides them with fleet planning and customer satisfaction programs and sells them certain Dollar-branded supplies. In addition, Dollar offers its franchisees rental rate management analysis, centralized corporate account and tour billing and travel agent commission payments. Dollar franchisees pay Dollar a fee for each reservation made through Dollar’s worldwide reservation system.

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International

As of December 31, 2002, Dollar had franchised operations located in 27 countries outside the United States and Canada. Master franchisees, direct franchisees and sub-franchisees operate Dollar’s vehicle rental locations outside the United States. Master franchisees are authorized to use Dollar’s service marks and business methods in territories in which they operate directly or through sub-franchisees, and are responsible for promoting the Dollar brand name and its services and products, and for developing and supporting their direct operations and sub-franchisees. Dollar’s revenues from international franchise operations were less than 1% of 2002 total revenue.

Dollar exchanges reservations with Sixt, AG, a major European rental car company. Through its alliance with Sixt, Dollar offers service in more than 45 countries covering Europe, the Middle East and Africa. In November 2002, Dollar provided the required notification to Sixt of its intent to terminate this agreement, with such termination to become effective November 4, 2003. The number of foreign locations or Dollar system-wide locations disclosed in this report does not include the Sixt locations.

Marketing

Dollar’s marketing strategy is to position Dollar as the value-priced, on-airport car rental company to cost conscious leisure and business travelers. Dollar utilizes a mix of national and local advertising, promotions and strategic marketing efforts to promote this strategy.

Advertising and Promotion

Dollar’s national advertising programs utilize a media mix of both print and television with an emphasis on the popular leisure destinations of Florida, California, Hawaii, Nevada and Arizona. Dollar communicates its value-priced message to consumers via frequent print advertisements as well as media advertising via the Internet. Dollar also advertises on U.S. broadcast and cable television networks, promoting dollar.com, its online booking channel. Dollar spends approximately 3% of its annual total U.S. system-wide revenues on marketing, advertising, public relations and sales promotions. Dollar has national marketing partnerships with major U.S. airlines’ frequent flier programs.

Dollar encourages franchisees, as well as local management of company-owned stores, to develop local market relationships and retail sales initiatives that coordinate with Dollar’s national advertising programs. Dollar makes available print and broadcast advertising materials to franchisees for use in local markets and pays a promotional allowance for qualifying advertising expenditures to the franchisees that participate in Dollar’s fleet program.

Dollar has made filings under the intellectual property laws of jurisdictions in which it or its franchisees operate, including the U.S. Patent and Trademark Office, to protect the names, logos and designs identified with Dollar. These marks are important for customer awareness and selection of Dollar for vehicle rental.

Strategic Marketing Efforts

Strategic marketing partnerships and frequent flier programs have been established with most major airline partners and many travel agencies. Approximately 24% of Dollar’s non-tour reservations are booked through travel agencies utilizing the major airline global distribution systems. Major travel agency chains and consortia operate under preferred supplier agreements with Dollar and are supported by Dollar’s sales department. Under its preferred supplier arrangements, Dollar provides these travel agency groups additional commissions or lower prices in return for their featuring Dollar in their advertising or giving Dollar a priority in their reservation systems. In general, these arrangements are not exclusive to Dollar and many travel agency groups have similar arrangements with other vehicle rental companies.

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During 2002, Dollar received approximately 44% of its reservations through its dollar.com web site and other Internet travel sites. Dollar continues to invest in its dollar.com web site and plans to continually enhance the site to best meet its customers’ travel needs. In recognition of the shift in travel distribution patterns, Dollar has placed significant emphasis on developing relationships with Internet travel sites. Dollar maintains preferred supplier arrangements with two of the leading Internet travel sites, Expedia and Travelocity, as well as having strong online market share with Orbitz and HRN. Additionally, Dollar’s innovative use of direct-connect technology with Southwest Airlines’ southwest.com web site opened up another new booking channel in 2001, and it continued to grow in 2002.

Summary Operating Data of Dollar


			Years Ended December 31,

			2002		2001		2000

					(in thousands)
Revenues:
	U.S. Company-owned stores		$	782,809	$	758,937	$	803,472
	U.S. and Canada franchisees			24,401		35,136		45,158
	International franchisees			1,374		1,412		1,624
	Other			811		119		2,542

		Total revenues	$	809,395	$	795,604	$	852,796


			As of December 31,

			2002		2001		2000

Rental Locations:
		U.S. Company-owned stores		138		134		130
		U.S. and Canada franchisee locations		129		135		152

Franchisees:
		U.S. and Canada		56		61		66
		International		42		42		38

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Thrifty

General

Thrifty’s focus has been on franchising and franchise support services. However, as part of a new strategy, beginning in 2001 and continuing in 2002, Thrifty began operating stores that were previously operated by franchisees. Thrifty does not plan to offer its corporate stores in large airport markets for refranchising. Thrifty operated company-owned stores in 17 cities in the United States and Canada as of December 31, 2002. Thrifty’s U.S. company-owned stores and its franchisees derive approximately 69% of their combined rental revenues from the airport market and approximately 31% from the local market. Thrifty’s approach of serving both the airport and local markets within each territory allows many of its franchisees and company-owned stores to have multiple locations to improve fleet utilization and profit margins by moving vehicles among locations to better address differences in demand between their markets. As airports have begun to institute fees for vehicle rental companies located outside their properties or limited these companies’ access to airport travelers, Thrifty and its franchisees have been moving to in-terminal locations. At December 31, 2002, Thrifty had 85 company-owned and franchised in-terminal locations, which is over half of the airports serviced by Thrifty in the U.S.

As of December 31, 2002, Thrifty’s vehicle rental system included 536 rental locations in the United States and Canada, divided between 450 franchisee locations and 86 company-owned stores. The Thrifty system also included 591 locations abroad, all of which were franchisee locations. Thrifty’s total revenue was $323 million in 2002, of which $204 million (63%) was revenue from franchisees in the form of fleet leasing fees, system fees and other service and product fees and $119 million (37%) of which was generated by company-owned stores. Revenues from Thrifty’s franchisees outside the United States and Canada were less than 1% of 2002 total revenue.

Franchising

United States

Thrifty offers its franchisees a full line of services and products not easily or cost-effectively available from other sources. Thrifty actively promotes franchisee financial stability and growth and seeks opportunities to enhance its vehicle rental system by improving its services to franchisees, particularly its fleet leasing programs, and by developing new franchisee revenue opportunities, such as car sales, airport parking and truck rental. Thrifty also works closely with its U.S. franchisees in formulating and implementing marketing and operating strategies.

Thrifty licenses its U.S. franchisees to use its service marks and participate in its various services and systems. Franchisees pay Thrifty an initial franchise fee based on such factors as the population, the number of airline passengers, and total airport vehicle rental revenues and the level of any other vehicle rental activity in the franchised territory. Franchises are sold on an exclusive basis for a specific geographical territory, usually a city or metropolitan area. Over the past five years, Thrifty’s U.S. franchisee turnover has averaged approximately 14% per year, with an average of 23 terminations and 19 additions per year.

Initial Franchise Fees, System Fees and Advertising Fees. Thrifty’s initial franchise fees are negotiated on a case-by-case basis, and may be structured to promote expansion of an existing franchisee’s operations into a contiguous area. In addition to the initial franchise fee, its U.S. franchisees pay Thrifty an administrative fee, which is generally 3% of base rental revenue, excluding ancillary products.

U.S. franchisees also pay an advertising fee ranging from 2.5% to 5% of base rental revenue to a separate advertising fund managed jointly by franchisees and Thrifty management. Thrifty has implemented, and may implement in the future, special short-term reductions in system and advertising fees to encourage growth.

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For 2002, Thrifty’s five largest U.S. franchisees generated approximately 19% of Thrifty’s total revenue in the form of system, fleet leasing, reservation and other fees.

Marketing to Prospective Franchisees. Thrifty has developed programs to attract franchisees in the vehicle rental industry. Programs include recruiting independent vehicle rental companies with phased-in fees and competitive fleet leasing terms, assisting individuals experienced in vehicle rental operations to operate their own franchises through financial assistance, start-up fleet supply and other support. Thrifty also encourages existing franchisees to acquire and expand into neighboring territories by offering fleet incentives, reduced administrative and advertising fees and lower initial franchise fees for additional territories.

Fleet Leasing Program. Thrifty has a fleet leasing program for franchisees that it believes provides them with a competitive and flexible source of fleet vehicles. In 2002, fleet leasing accounted for approximately 49% of Thrifty’s total revenue. The Company’s 2003 strategy is to offer attractive lease rates that it believes will improve franchisee health and support additional growth in the fleet leasing program. See “Fleet Acquisition and Management — Fleet Leasing Programs.”

Training and Support. Thrifty’s franchisees are required to attend initial orientation and receive ongoing training in areas such as customer service and hiring. Thrifty’s “True Blue Pride Initiative,” identifies areas requiring customer service improvements and establishes new standards to deliver faster and friendlier service. This initiative emphasizes the role that franchisee customer service employees should have in identifying and resolving customer complaints. New programs that have been developed as part of the initiative include Thrifty’s express rental program, Blue Chip, which provides for preprinted rental contracts and expedited service.

Thrifty also publishes a comprehensive operating manual for franchisees and provides operational support in areas such as cost control, fleet planning, revenue management and local advertising and marketing. Thrifty also assists franchisees on real estate matters, including site selection and airport facility issues.

Worldwide Reservations Center and Other Information Systems. Thrifty’s franchisees benefit from Thrifty’s continuously staffed worldwide reservation centers at its headquarters in Tulsa, Oklahoma and its reservation facility in Okmulgee, Oklahoma. Thrifty’s reservation facilities are linked to all of the major airline reservation systems and through such systems to travel agencies in the United States, Canada and abroad. Thrifty franchisee payments for reservations made through these centers accounted for approximately 4% of Thrifty’s 2002 total revenues. Thrifty’s Internet web site (thrifty.com) continues to show significant growth with reservations booked through thrifty.com representing 22% of Thrifty’s reservations in 2002. An additional 26% of Thrifty’s reservations were booked through other Internet travel sites.

U.S. franchisees receiving a certain volume of reservations are required to use an approved automated counter system, usually leasing or subleasing the related hardware and software from Thrifty or a third-party leasing agent. In addition to providing an electronic data link with Thrifty's worldwide reservation centers, the automated counter system prints rental agreements and provides Thrifty and its franchisees with customer and vehicle inventory information and financial and operating reports.

Thrifty supports its information systems through a combination of internal resources and external technology providers. Thrifty has engaged EDS to manage and monitor its data center network and its daily information processing. Other information systems are supported by Thrifty employees. Thrifty’s fleet and reservation processing systems are housed in a secure underground EDS facility in Oklahoma designed to withstand disasters.

Insurance, Supplies and National Account Programs. Thrifty makes available to its franchisees, for a fee, insurance for death or injury to third parties, property damage and damage to or theft of franchisee vehicles.

Thrifty makes bulk purchases of items used by its franchisees, which it sells to franchisees at prices that are often lower than they could obtain on their own. Thrifty also negotiates national account programs to allow its franchisees to take advantage of volume discounts for many materials or services used for operations such as tires, glass replacement, long distance telephone service and overnight mail.

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Parking Services. Airport parking operations are a natural complement to vehicle rental operations. Thrifty encourages its franchisees that have near-airport locations to add this ancillary business. Thrifty assists its franchisees in obtaining additional property and in planning and implementing parking operations. Franchisees benefit since the Thrifty service marks are already on the premises, shuttle buses are already being operated for rental customers and parking operations increase service levels and recognition at the airports. Franchisees with parking operations may also offer ancillary services such as car washes and oil changes to create additional opportunities to service the vehicle while the traveler is away. Thrifty receives a fee generally equal to 3% of the total revenue generated from these services.

Services and Products Provided to Rental Customers. Thrifty’s franchisees provide their customers with products and services substantially similar to those provided to customers by Dollar’s company-owned stores.

International (Except Canada)

As of December 31, 2002, Thrifty master franchisees operated 591 vehicle rental locations in 64 countries and territories outside the United States and Canada. Regions with Thrifty franchisees include Latin America, Europe, the Middle East, Africa and the Asia-Pacific region. Thrifty seeks to attract international franchisees by emphasizing Thrifty’s uniform image, brand marketing efforts, worldwide reservation system and consistent vehicle rental system practices and procedures. Thrifty’s revenues from international franchisees were less than 1% of 2002 total revenues.

Thrifty grants master franchises on a countrywide basis. Each master franchisee is permitted to use directly and subfranchise others to use Thrifty’s service marks, systems and technologies within its country or territory.

Company-Owned Stores

Historically, Thrifty had established company-owned stores only upon the financial failure of a franchisee. As part of a new strategy, beginning in 2001 and continuing in 2002, Thrifty began operating stores that were previously operated by franchisees. Thrifty does not plan to offer its company-owned stores in large airport markets for refranchising. Additionally, on an opportunistic basis, Thrifty may acquire operations from U.S. franchisees and convert them to company-owned stores. As of December 31, 2002, Thrifty operated company-owned stores in 10 cities in the United States, which are Tulsa, Dallas-Fort Worth, Oakland, San Francisco, Washington, D.C., Baltimore, Norfolk, Boston, Denver and Bentonville, Arkansas. Thrifty expects to acquire additional locations in key markets in 2003. The services and products Thrifty provides to company-owned stores and those provided by company-owned stores to vehicle rental customers are substantially similar to those provided to and by Thrifty’s U.S. franchisees.

Thrifty Car Sales

Thrifty Car Sales, Inc., was formed in December 1998, to franchise retail used car dealerships under the Thrifty Car Sales brand name. Thrifty Car Sales provides an opportunity for both independent and manufacturer franchised dealers to enhance or expand their used car operations under a well-recognized national brand name. In addition to the use of the brand name, dealers have access to a variety of products and services offered by Thrifty Car Sales. These products and services include operational and marketing support, vehicle supply services, customized retail and wholesale financing programs as well as national accounts and supplies programs. At December 31, 2002, Thrifty Car Sales had 46 franchise locations in operation.

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Canadian Operations

Thrifty operates in Canada through its wholly owned subsidiary, Thrifty Canada, Ltd., which was renamed Dollar Thrifty Automotive Group Canada Inc. on January 21, 2003 (“TCL”). TCL operates company-owned stores in seven of the eight largest airport vehicle rental markets in Canada and encourages franchisees to operate in the remaining market. As of December 31, 2002, the TCL system included 129 vehicle rental locations, of which 85 were operated by franchisees and 44 were operated as company-owned stores.

Company-Owned Stores

TCL’s company-owned store operations include seven strategic airports: Toronto, Montreal, Vancouver, Winnipeg, Calgary, Ottawa and Halifax. These operations are important to maintaining a national airport presence in Canada, where TCL has significant airport concession and lease commitments. Historically, TCL’s operating results have been adversely affected by losses incurred by company-owned stores.

Franchising

TCL provides services and products to its franchisees that are substantially similar to those Thrifty provides to its U.S. franchisees, including fleet leasing, insurance services, advertising and marketing support and supplies. Due to the structure of the Canadian vehicle rental market, which has a greater proportion of vehicle rental activity from on-airport locations than off-airport locations as compared to the United States, Thrifty has sought to strengthen its airport presence in Canada by encouraging existing and prospective franchisees to locate on-airport. Canadian franchisees pay TCL a combined monthly administrative and advertising fee fixed in most cases at 8% of rental revenues.

Marketing

Thrifty’s marketing objective is to position the Thrifty brand as an industry leader in delivering value for vehicle rental to value-conscious consumers. In the United States, it implements this strategy primarily through national advertising, strategic marketing partnerships and enhancing distribution channels. In addition, marketing assistance is provided to U.S. franchisees in local advertising, promotion and sales.

Advertising, Promotion and Sales

Thrifty employs national advertising on U.S. broadcast and cable television networks and in newspapers and travel industry and airline magazines, as well as new media advertising via the Internet. Thrifty also sponsors sports and other events to increase national exposure and promote local Thrifty operations. In the United States, Thrifty’s national advertising and marketing expenses are paid out of an advertising fund managed by a national advertising committee consisting of representatives of Thrifty franchisees and certain members of Thrifty management. U.S. franchisees and company-owned stores contribute 5% of their base rental revenue from airport operations and 2.5% of their base rental revenue from local operations to the advertising fund. Thrifty has national marketing partnerships with major U.S. airlines’ frequent flier programs, as well as Carlson Wagonlit’s Gold Point Rewards Program.

Thrifty has made filings under the intellectual property laws of jurisdictions in which it or its franchisees operate, including the U.S. Patent and Trademark Office, to protect the names, logos and designs identified with Thrifty. These marks are important for customer awareness and selection of Thrifty for vehicle rental.

Strategic Marketing Efforts

During 2002, the volume of reservations received through its thrifty.com web site and other Internet travel sites continued to grow rapidly. Thrifty continues to invest in its thrifty.com web site and recently introduced a new and easier means of booking on thrifty.com.

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Thrifty enjoys a strong relationship with the travel agency community, which is highlighted by its longstanding support of ASTA (American Society of Travel Agents) and through its preferred supplier arrangements. Under its preferred supplier arrangements, Thrifty provides these travel agency groups additional commissions or lower prices in return for their featuring Thrifty in their advertising or giving Thrifty a priority in their reservation systems. In general, these arrangements are not exclusive to Thrifty, and many travel agency groups have similar arrangements with other vehicle rental companies. Thrifty continues to be the exclusive car rental supplier in Radisson’s “Look to Book” program.

In 2002, Thrifty developed a relationship with Wal-Mart Stores, Inc. This relationship has resulted in Thrifty being named co-primary supplier of rental cars for Wal-Mart’s corporate travel and an exclusive marketing and sales agreement with Wal-Mart.com to provide anytime, anywhere flat rate pricing for Thrifty’s compact and intermediate size rental vehicles. Thrifty is also the only car rental company approved to accept the Wal-Mart credit card.

Summary Operating Data of Thrifty


			Years Ended December 31,

			2002		2001		2000

					(in thousands)
Revenues:
	U.S. and Canada franchisees		$	201,484	$	185,556	$	215,340
	U.S. and Canada Company-owned stores			118,981		66,025		42,844
	International franchisees			2,818		2,930		2,885

		Total revenues	$	323,283	$	254,511	$	261,069


			As of December 31,

			2002		2001		2000

Rental Locations:
		U.S. and Canada franchisee locations		450		541		613
		U.S. and Canada Company-owned stores		86		59		52

Franchisees:
		U.S. and Canada		187		212		226
		International		64		60		57

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Fleet Acquisition and Management

U.S. Vehicle Supply

For the 2002 model year, DaimlerChrysler vehicles represented approximately 83% of the Company’s total U.S. fleet. The Company also purchases or leases vehicles of other automotive manufacturers, permitting it to adjust the composition and overall cost of its fleet. The Company expects that for the 2003 model year, DaimlerChrysler vehicles will represent approximately 80% of the Company’s U.S. fleet.

Automotive manufacturers’ residual value programs limit the Company’s residual value risk. Under these programs, the manufacturer either guarantees the aggregate depreciated value upon resale of covered vehicles of a given model year, as is generally the case under DaimlerChrysler’s program, or agrees to repurchase vehicles at specified prices during established repurchase periods. In either case, the manufacturer’s obligation is subject to certain conditions relating to the vehicle’s age, physical condition and mileage. Vehicles purchased by vehicle rental companies under these programs are referred to herein as “Program Vehicles.” Vehicles for which rental companies bear residual value risk are referred to herein as “Non-Program Vehicles.” The Company believes that a majority of vehicles owned by other U.S. vehicle rental companies, except for Enterprise, are Program Vehicles.

The Company’s primary supplier, DaimlerChrysler, sets the terms of its residual value program before the start of each model year. The terms include monthly depreciation rates, minimum and maximum holding periods and mileage, model mix requirements and vehicle condition and other return requirements. The residual value program enables the Company to limit its residual value risk with respect to Program Vehicles because DaimlerChrysler agrees to reimburse Dollar and Thrifty for any difference between the aggregate gross auction sale price of the Program Vehicles for the particular model year and the vehicles’ aggregate predetermined residual value. Under the program, Dollar and Thrifty must sell the Program Vehicles in closed auctions to DaimlerChrysler dealers. Dollar and Thrifty are reimbursed under the program for certain transportation and auction-related costs.

The Company also purchases Non-Program Vehicles, when required by manufacturers in connection with the purchase of Program Vehicles, or if it believes there is an opportunity to lower its fleet costs or to fill model and class niches not available through residual value programs. DaimlerChrysler, which is the main provider of Non-Program Vehicles to the Company, does not set any terms or conditions on the resale of Non-Program Vehicles other than required minimum holding periods. For the 2002 model year, approximately 16% of the vehicles acquired by the Company were Non-Program Vehicles.

The Company’s operating results are materially affected by the depreciation rates and other purchase terms provided under DaimlerChrysler’s residual value program, as well as by other purchase incentives DaimlerChrysler provides. The percentage of vehicles acquired under DaimlerChrysler’s and other manufacturers’ residual value programs in the future will depend upon a number of factors, including the availability and cost of these programs. Residual value programs enable Dollar and Thrifty to determine their depreciation expense on Program Vehicles in advance. Vehicle depreciation is the largest single cost element in the Company’s operations. The percentage of the Company’s vehicle rental fleets benefiting from residual value programs could decrease if the automotive manufacturers changed the size or terms of these programs. In that event, the Company would have increased residual value risk that could be material to its results of operations and could adversely affect its ability to finance its vehicles. Second, because it is difficult to predict future vehicle resale values, the Company may not be able to manage effectively the residual value risk on its Non-Program Vehicles. The residual value of Non-Program Vehicles depends on such factors as the general level of pricing in the automotive industry for both new and used vehicles. Prices for used vehicles generally decrease if the automotive manufacturers increase the retail sales incentives they offer on new vehicles. The Company cannot predict the level of retail sales incentives DaimlerChrysler or the other automotive manufacturers will offer in the future. The Company has received substantial payments under residual value programs over the past several years. See Note 5 of Notes to Consolidated Financial Statements.

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Dollar and Thrifty entered into U.S. vehicle supply agreements with DaimlerChrysler, which commenced with the 1997 model year and expired in July 2001. In June 2000, the Company entered into a new vehicle supply agreement with DaimlerChrysler, which enabled the Company to acquire revenue-earning vehicles beginning with the 2002 model year through the 2006 model year. In October 2002, the Company finalized a new vehicle supply agreement (the “VSA”) with DaimlerChrysler, which enables the Company to acquire vehicles through the 2007 model year. Under the VSA, DaimlerChrysler has agreed to make specified volumes of DaimlerChrysler vehicles available for use by company-owned stores or for fleet leasing programs. Dollar and Thrifty will promote DaimlerChrysler vehicles exclusively in their advertising and other promotional materials and DaimlerChrysler has agreed to make various promotional payments to the Company. These payments are material to the Company’s results of operations. See Note 5 of Notes to Consolidated Financial Statements.

The VSA provides that the Company will purchase at least 75% of its vehicles from DaimlerChrysler until a certain minimum level is reached, of which 80% will be Program Vehicles and 20% will be Non-Program Vehicles. While DaimlerChrysler has the sole discretion to set the specific terms and conditions of its residual value program for a model year, it has agreed in the VSA to offer programs to the Company that, taken as a whole, are competitive with a residual value program Ford or General Motors makes generally available to domestic vehicle rental companies.

Vehicle Disposition

Dollar and Thrifty generally hold vehicles in rental service from 8 to 10 months. The length of service is determined by taking into account seasonal rental demand and the average monthly mileage accumulation. Most vehicles must be removed from service before they reach 30,000 miles to avoid significant penalties under DaimlerChrysler’s residual value program. As of December 31, 2002, the average age of vehicles in the Company’s fleet was approximately 5 months. The Company’s flexibility to adjust the holding period for vehicles, particularly for Program Vehicles, enables it to adjust the fleet size up or down relatively quickly in response to changing market conditions. Dollar or Thrifty must bear the risk on the resale of Program Vehicles that are not eligible to be returned.

Dollar and Thrifty dispose of Non-Program Vehicles through auctions and directly to used car dealers, other car rental companies, wholesalers, retailers and franchisees. During 2002, Dollar and Thrifty disposed of 44% of their Non-Program Vehicles through direct channels and 56% through auctions. Utilizing sales channels other than auctions avoids transportation costs, interest costs and auction fees and may provide higher net residual amounts from disposal.

Maintenance

Dollar and Thrifty, including certain franchisees, may have automotive maintenance centers at airports and in urban and suburban areas. Many of these facilities are accepted by automotive manufacturers as eligible to perform and receive reimbursement for warranty work. Collision damage and major repairs are generally performed by independent contractors. Certain franchisees are responsible for the maintenance of their fleet vehicles.

Fleet Leasing Programs

Dollar and Thrifty make fleet leasing programs available to their U.S. franchisees for each new model year. The terms of their fleet leasing programs generally mirror the requirements of various manufacturers’ residual value programs with respect to model mix, order and delivery, vehicle maintenance and returns, but also include Non-Program Vehicles. Dollar and Thrifty monitor the creditworthiness and operating performance of franchisees participating in their fleet leasing programs and periodically audit franchisees’ leased fleets. Dollar and Thrifty design their fleet leasing programs to offer their franchisees an attractive means of obtaining fleet vehicles. For 2002, approximately 16% and 64% of the vehicles in the fleets of Dollar’s and Thrifty’s respective U.S. franchisees had been provided through their fleet leasing programs. In 2002, approximately 1% of Dollar’s and 49% of Thrifty’s (including Canada) total revenue was derived from vehicle leasing programs.

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Dollar and Thrifty each set their respective lease rates after considering Program Vehicle depreciation rates, estimated Non-Program Vehicle depreciation, interest costs, model mix, administrative costs and market conditions. Average monthly lease rates vary depending on vehicle model, and the average lease period is between eight and ten months. Although Dollar and Thrifty lease Non-Program Vehicles as well as Program Vehicles to their franchisees, their fleet leasing programs eliminate the residual value risk for their franchisees. Thrifty franchisees may, however, elect to assume some residual value risk on certain Non-Program Vehicles they lease in exchange for a lower lease rate.

U.S. Fleet Data

Years Ended December 31,

2002 2001 2000

Thrifty:

Average number of vehicles leased to franchisees

32,115

28,384

31,267

Average number of vehicles in combined fleets of
franchisees
50,579 44,821 49,210

Average number of vehicles in combined fleets of
company-owned stores
6,040 2,418 720

Total
56,619 47,239 49,930

Dollar:

Average number of vehicles leased to franchisees

1,734

3,028

4,080

Average number of vehicles in combined fleets of
franchisees
11,164 13,041 15,470

Average number of vehicles in combined fleets of
company-owned stores
59,291 62,611 61,858

Total
70,455 75,652 77,328

Competition

There is intense competition in the vehicle rental industry on the basis of price, service levels, vehicle quality, vehicle availability and convenience and condition of rental locations. Dollar’s and Thrifty’s principal competitors may have larger market shares and rental volumes, greater financial resources and more sophisticated information systems. Dollar operates mainly in the U.S. airport market, although compared to its competitors, it relies more heavily on leisure and tour customers. Dollar’s franchisees have a similar customer profile. In any given location, Dollar may compete with national, regional and local vehicle rental companies, some of which have greater financial resources than the Company. Dollar’s principal competitors for business and leisure travelers are Alamo, Avis, Budget, Hertz, National, Enterprise and Thrifty. Dollar competes primarily on the basis of price and customer service.

Thrifty and its U.S. franchisees generally compete for cost-conscious consumers with Alamo, Avis, Budget, Hertz, National, Dollar and Enterprise. Hertz, Enterprise, Avis and Alamo, as well as local and regional rental companies, are major competitors in the local market. Thrifty and its U.S. franchisees compete on the basis of price, location, service and well-established customer relationships. Most Thrifty franchisees compete in the local market for retail general use business rather than insurance replacement rentals. Thrifty’s company-owned stores have a similar customer profile.

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The Canadian vehicle rental markets are also intensely competitive. The vast majority of the Canadian market is operated either directly or through franchisees of the major U.S. vehicle rental companies, including Budget, Avis, Enterprise, Hertz and National, as well as Dollar and Thrifty.

Insurance

The Company is subject to third-party bodily injury liability and property damage liability claims resulting from accidents involving their rental vehicles. In early 2002, the Company reverted to retaining the risk of loss in various amounts up to $1 million on a per occurrence basis for public liability and property damage claims. The Company maintains insurance coverages at certain amounts in excess of this $1 million layer. Previously in 2001 and 2000, the majority of the Company’s operations had first dollar coverage from insurance carriers, subject to certain policy limits, for these claims. Beginning in 2003, the Company assumed additional risk of loss up to $2 million on a per occurrence basis for public liability and property damage claims and also began retaining the risk of loss on a portion of the supplemental liability insurance (“SLI”) policies sold to vehicle rental customers.

The Company retains the risk of loss for general and garage liability insurance coverage in various amounts up to $2 million and maintains insurance at certain amounts in excess of $2 million. The Company retains the risk of loss for any catastrophic and comprehensive damage to its vehicles. In addition, the Company carries workers’ compensation coverage with retentions in various amounts up to $250,000. The Company also carries excess liability and directors’ and officers’ liability insurance coverage.

Provisions for bodily injury liability and property damage liability on self-insured claims are made by charges to expense based upon periodic evaluations by an independent actuary of estimated ultimate liabilities on reported and unreported claims. As of December 31, 2002, the Company’s reserve for public liability and property damage claims was approximately $39.5 million. The Company’s obligations to pay these losses and indemnify the insurance carriers are collateralized by surety bonds and letters of credit. As of December 31, 2002, these surety bonds totaled approximately $21.1 million.

The Company also maintains various surety bonds to secure performance under airport concession agreements and other obligations. As of December 31, 2002, the total amount of these bonds was approximately $24.3 million.

Regulation

Loss Damage Waivers and Ancillary Insurance

Loss damage waivers relieve customers from financial responsibility for vehicle damage. Legislation affecting the sale of loss damage waivers has been adopted in 26 states. These laws either require disclosure to customers that loss damage waivers may not be necessary, limit customer liability to specified amounts, limit the ability of vehicle rental companies to offer loss damage waivers for sale or cap the amounts that may be charged for loss damage waivers. Adoption of national or additional state legislation affecting or limiting the sale, or capping the rates, of loss damage waivers could result in the loss of this revenue and additional limitations on potential customer liability could increase costs to Dollar, Thrifty and their franchisees. Legislation was passed in New York state removing many of the limitations on the car rental industry’s ability to sell loss damage waivers effective February 24, 2003.

Dollar, Thrifty and other vehicle rental companies offer customers SLI in connection with vehicle rentals. In 1997, the State of Texas determined that car rental companies cannot sell SLI without licensing and product approval. Some other states concluded that the selling of SLI required an insurance license while other states were unclear on the issue. During the fourth quarter of 1999, the Financial Services Reform Bill was passed by Congress to address this issue. The legislation created a federal presumption for a three-year period that car rental companies are not required to have a state insurance license to sell certain insurance products, unless state law specifically requires such a license. This three-year period expired in the fall of 2002; however, most states have enacted legislation or other administrative action addressing this issue. Car rental companies continue to work for legislative or administrative action in the few remaining states that have not yet addressed this issue.

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Franchising Regulation

As franchisors, Dollar and Thrifty are subject to federal, state and foreign laws regulating various aspects of franchise operations and sales. These laws impose registration and disclosure requirements on franchisors in the offer and sale of franchises and, in certain states, also apply substantive standards to the relationship between the franchisor and the franchisee, including those pertaining to default, termination and nonrenewal of franchises.

Other Matters

Certain states currently make vehicle owners (including vehicle rental companies) vicariously liable for the actions of any person lawfully driving an owned vehicle, regardless of fault. Some of these states, primarily New York, do not limit this liability. Vehicle rental companies are also subject to various federal, state and local consumer protection laws and regulations including those relating to advertising and disclosure of charges to customers.

Dollar and Thrifty are subject to federal, state and local laws and regulations relating to taxing and licensing of vehicles, franchise sales, franchise relationships, vehicle liability, used vehicle sales, insurance, telecommunications, vehicle rental transactions and labor matters. The Company believes that Dollar and Thrifty practices and procedures are in substantial compliance with federal, state and local laws and is not aware of any material expenditures necessary to meet legal or regulatory requirements. Nevertheless, considering the nature and scope of Dollar’s and Thrifty’s businesses, it is possible that regulatory compliance problems could be encountered in the future.

Environmental Matters

The principal environmental regulatory requirements applicable to Dollar and Thrifty operations relate to the ownership, storage or use of petroleum products such as gasoline, diesel fuel and new and used motor oil; the treatment or discharge of waste waters; the operation of automotive body shops; and the generation, storage, transportation and off-site treatment or disposal of waste materials. Dollar and Thrifty own 12 and lease 85 locations where petroleum products are stored in underground or above-ground tanks. For owned and leased properties, Dollar and Thrifty have programs designed to maintain compliance with applicable technical and operational requirements, including leak detection testing of underground storage tanks, and to provide financial assurance for remediation of spills or releases.

The historical and current uses of the Dollar and Thrifty facilities may have resulted in spills or releases of various hazardous materials or wastes or petroleum products (“Hazardous Substances”) that now, or in the future, could require remediation. The Company also may be subject to requirements related to remediation of Hazardous Substances that have been released into the environment at properties they own or operate, or owned or operated in the past, or at properties to which they send, or have sent, Hazardous Substances for treatment or disposal. Such remediation requirements generally are imposed without regard to fault, and liability for any required environmental remediation can be substantial.

Dollar and Thrifty may be eligible for reimbursement or payment of remediation costs associated with releases from registered underground storage tanks in U.S. states that have established funds to assist in the payment of such remediation costs. Subject to certain deductibles, the availability of funds, the compliance status of the tanks and the nature of the release, these tank funds may be available to Dollar and Thrifty for use in remediating releases from their tank systems.

At certain facilities, Dollar and Thrifty presently are investigating or remediating soil or groundwater contamination. Based on currently available information, the Company does not believe that the costs associated with environmental investigation or remediation will be material. However, additional contamination could be identified or occur in the future.

The use of automobiles and other vehicles is subject to various governmental requirements designed to limit environmental damage, including that caused by emissions and noise. Generally, these requirements are met by the manufacturer except, on occasion, equipment failure requiring repair by the Company.

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Environmental legislation and regulations and related administrative policies have changed rapidly in recent years. There is a risk that governmental environmental requirements, or enforcement thereof, may become more stringent in the future and that the Company may be subject to legal proceedings brought by government agencies or private parties with respect to environmental matters. In addition, with respect to cleanup of contamination, additional locations at which wastes generated by the Company may have been released or disposed, and of which the Company is currently unaware, may in the future become the subject of cleanup for which the Company may be liable, in whole or part. Accordingly, while the Company believes that it is in substantial compliance with applicable requirements of environmental laws, there can be no assurance that the Company’s future environmental liabilities will not be material to the Company’s consolidated financial position or results of operations or cash flows.

Employees

As of December 31, 2002, the Company employed a total of approximately 5,900 full-time and part-time employees of whom approximately 4,300 were employed by Dollar and 1,600 by Thrifty. Approximately 200 of the Company’s employees were subject to collective bargaining agreements as of December 31, 2002. The Company believes its relationship with its employees is good.

ITEM 2. PROPERTIES

The Company owns its headquarters located at 5330 East 31st Street, Tulsa, Oklahoma. This location is a three building office complex that houses the headquarters and Tulsa reservation centers for Dollar and Thrifty. These buildings and the related improvements were mortgaged in December 1997 pursuant to a mortgage in favor of Credit Suisse First Boston (“CSFB”), as administrative agent for a syndicate of banks. The mortgage was executed in connection with the Revolving Credit Facility, as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”.

In connection with the Revolving Credit Facility, Dollar also executed mortgages in favor of CSFB encumbering its real property located in San Diego, Tampa and Las Vegas. Thrifty also executed mortgages in favor of CSFB encumbering its real property located in Phoenix, Ft. Lauderdale, Orlando, Dallas, Houston and Salt Lake City.

Dollar and Thrifty each own or lease real property used for company-owned stores and office facilities, and in some cases own real property that is leased to franchisees or other third parties. As of December 31, 2002, the Company’s company-owned operations were carried on at 224 locations in the U.S. and Canada, the majority of which are leased. Dollar and Thrifty each operate company-owned stores under concession agreements with various governmental authorities charged with the operation of airports. Concession agreements for airport locations, which are sometimes competitively bid, are important for securing air traveler business.

ITEM 3. LEGAL PROCEEDINGS

On November 2, 1994, the City of San Jose, California filed an action in the Superior Court of California, against Chevron, Dollar and others, seeking unspecified compensatory and punitive damages and injunctive relief. The City of San Jose has not served process on Dollar. The suit relates to pollution at a site currently occupied by Dollar and formerly occupied by Chevron. Dollar has partially remediated the affected soil, but not the allegedly affected ground water. Dollar believes that prior uses of the site resulted in any remaining contamination at the site.

In addition to the foregoing, various legal actions, claims and governmental inquiries and proceedings are pending or may be instituted or asserted in the future against the Company. Litigation is subject to many uncertainties, and the outcome of the individual litigated matters is not predictable with assurance. It is possible that certain of the actions, claims, inquiries or proceedings, including the one discussed above, could be decided unfavorably to the Company. 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.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter ended December 31, 2002.

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PART II

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY
	AND RELATED STOCKHOLDER MATTERS

The Company’s Common Stock is listed on the New York Stock Exchange (“NYSE”) under the trading symbol “DTG.” The high and low sales prices for the Common Stock for each quarterly period during 2002 and 2001, were as follows:


	First Quarter		Second Quarter		Third Quarter		Fourth Quarter


2002

High	$	21.15	$	25.90	$	26.47	$	22.14
Low	$	14.62	$	20.20	$	15.21	$	14.66

2001

High	$	22.38	$	25.46	$	24.00	$	15.50
Low	$	17.88	$	19.75	$	8.50	$	9.35

The 24,671,895 shares of Common Stock outstanding at February 28, 2003 were held by approximately 2,600 registered and beneficial stockholders of record.

The Company intends to reinvest its earnings in its business and therefore does not anticipate paying any cash dividends in the foreseeable future. The Company has not paid cash dividends since completion of the Offering.

Under the terms of the Revolving Credit Facility, restrictions were imposed by the lenders on the payment of cash dividends and share repurchases. During the term of such agreement, which expires August 2, 2005, dividends are permitted at the lesser of specified monetary levels or percentages of cash flow. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Liquidity and Capital Resources”.

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ITEM 6. SELECTED FINANCIAL DATA

Selected Consolidated Financial Data of the Company

The selected consolidated financial data was derived from the audited consolidated financial statements of the Company. References to system-wide vehicle rental revenue include revenue received from the Company’s company-owned stores and by franchisees from the rental of vehicles.


			Years Ended December 31,

			2002		2001		2000		1999		1998

Statements of Operations:
	(In thousands except per share amounts)

Revenues:
	Vehicle rentals		$	897,384	$	821,834	$	844,668	$	736,845	$	654,739
	Vehicle leasing			168,792		162,204		198,686		218,614		202,371
	Fees and services			56,237		56,057		61,166		57,046		51,770
	Other			10,781		10,075		9,850		8,685		9,225

		Total revenues		1,133,194		1,050,170		1,114,370		1,021,190		918,105

Costs and expenses:
	Direct vehicle and operating			403,946		389,917		346,091		311,567		286,643
	Vehicle depreciation and lease charges, net			380,760		365,894		340,448		311,113		305,169
	Selling, general and administrative			177,562		169,599		187,711		190,994		163,256
	Interest expense, net			93,427		92,365		97,703		95,114		88,726
	Amortization of goodwill			-		6,178		5,941		5,842		5,417

		Total costs and expenses		1,055,695		1,023,953		977,894		914,630		849,211

Income before income taxes				77,499		26,217		136,476		106,560		68,894

Income tax expense				30,668		12,380		58,467		46,974		31,229

Net income			$	46,831	$	13,837	$	78,009	$	59,586	$	37,665

Earnings per share:
	Basic		$	1.93	$	0.57	$	3.23	$	2.47	$	1.56
	Diluted		$	1.88	$	0.57	$	3.18	$	2.43	$	1.56

Balance Sheet Data:
	(In thousands)

Revenue-earning vehicles, net			$	1,994,200	$	1,525,553	$	1,522,388	$	1,507,692	$	1,342,066
Total assets			$	3,116,434	$	2,163,692	$	2,100,374	$	2,171,653	$	1,865,300
Total debt			$	2,224,303	$	1,516,733	$	1,424,021	$	1,555,609	$	1,313,799
Stockholders' equity			$	499,481	$	463,321	$	458,139	$	379,127	$	315,914

Note: Certain reclassifications have been made to the 1998 - 2001 financial data to conform to the classifications used in 2002.

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U. S. and Canada


			Years Ended December 31,

			2002		2001		2000		1999		1998

System-wide Data:

Vehicle rental revenue:
	(In thousands)

	Company-owned stores		$	897,000	$	822,000	$	845,000	$	737,000	$	655,000
	Franchisee locations			673,000		670,000		780,000		739,000		657,000

		Total vehicle rental revenue	$	1,570,000	$	1,492,000	$	1,625,000	$	1,476,000	$	1,312,000

Rental locations:

	Company-owned stores			224		193		182		149		139
	Franchisee locations			579		676		765		824		763

		Total rental locations		803		869		947		973		902


Average number of vehicles operated during the period by company- owned stores and franchisees				128,968		130,252		134,475		123,814		111,652

Peak number of vehicles operated during the period by company- owned stores and franchisees				158,758		159,993		162,515		148,832		134,407

Company-owned Stores Data:

Vehicle rental data:
Average number of vehicles operated				69,272		68,696		65,702		59,218		53,983
Number of rental days				21,056,362		20,640,229		20,347,296		18,155,768		16,374,491
Average revenue per day			$	42.62	$	39.82	$	41.52	$	40.58	$	39.99
Monthly average revenue per vehicle			$	1,080	$	997	$	1,071	$	1,037	$	1,011

Vehicle leasing data:
Average number of vehicles leased				30,917		30,087		35,520		38,690		37,709
Average monthly lease revenue per unit			$	455	$	449	$	466	$	471	$	447

Note: Certain reclassifications have been made to the 1998 - 2001 financial and operating data to conform to the classifications used in 2002.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

General

The Company owns two separate vehicle rental companies, Dollar and Thrifty. They engage in the business of renting vehicles directly to retail and tour customers and providing vehicle leasing and other services to franchisees that rent to customers. The majority of Dollar’s revenue is derived from renting vehicles to customers from company-owned stores, while the majority of Thrifty’s revenue is generated from leasing vehicles and providing services to franchisees.

The Company’s revenues consist of:


	•	Vehicle rentals consists of revenue generated from renting vehicles to customers, including all related charges, through company-owned stores and is recognized as earned on a daily basis under the related rental contracts with customers.


	•	Vehicle leasing consists of revenue generated from leasing vehicles to franchisees, principally under operating leases with fixed monthly payments and is recognized as earned over the lease terms.


	•	Fees and services includes revenue generated from continuing franchise fees and providing reservations, insurance, supplies and other products and services to franchisees and is recognized as earned on a monthly basis.


	•	Other includes revenue generated from franchise sales, parking income, non-vehicle lease income and interest income derived from franchisees and is recognized as earned on a daily or monthly basis, except initial franchise fees, which are recognized upon substantial completion of all material services and conditions of the franchise sale and which coincides with the date of sale and commencement of operations by the franchisee.

The Company’s expenses consist of:


	•	Direct vehicle and operating includes costs related to the rental of revenue-earning vehicles to customers and to the leasing of vehicles to franchisees, such as field personnel expenses, facility expenses, concessions and commissions paid to airport authorities, travel agencies and others, insurance and lease promotion expenses, net of certain incentives received from vehicle manufacturers.


	•	Vehicle depreciation and lease charges, net includes depreciation expense relating to revenue-earning vehicles, net of gains and losses on the disposal of such vehicles, and lease charges for vehicles leased from third parties.


	•	Selling, general and administrative includes expenses including headquarters personnel expenses, advertising and marketing expenses and reservation expenses.


	•	Interest expense, net includes interest expense, net of interest earned on restricted cash, cash and cash equivalents, relating primarily to revenue-earning vehicle financing.


	•	Amortization of goodwill, which as of January 1, 2002, is no longer recorded in order to comply with Statement of Financial Accounting Standards (“SFAS”) No. 142.

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The Company’s profitability is primarily a function of the volume and pricing of rental transactions, utilization of the vehicles and the number of vehicles leased to franchisees. Significant changes in the purchase or disposal price of vehicles or interest rates can also have a significant effect on the Company’s profitability, depending on the ability of the Company to adjust pricing and lease rates for these changes. The Company’s business requires significant expenditures for vehicles and consequently, requires substantial liquidity to finance such expenditures.

As with most companies, the Company must exercise judgment in estimating certain costs included in its results of operations. The more significant items include:

Public liability and property damage – The Company may self-insure or retain a portion of the exposure for losses related to public liability and property damage insurance. The Company retains the services of a third party actuary to provide estimates of these exposures for losses; however, these estimates change as claims are finalized and paid.

Vehicle depreciation expense – The Company generally purchases 75% to 80% of its vehicles as Program Vehicles for which residual values are determined by depreciation rates that are established and guaranteed by the manufacturers. The remaining 20% to 25% of the Company’s vehicles are purchased without the benefit of a manufacturer residual value guaranty program. For these Non-Program Vehicles, the Company must estimate what the residual values of these vehicles will be at the expected time of disposal to determine monthly depreciation rates. The Company continually evaluates estimated residual values. Differences between actual residual values and those estimated by the Company result in a gain or loss on disposal and are recorded as an adjustment to depreciation expense. The average life of the Non-Program Vehicles is 8 to 10 months and the Company has generally experienced gains on disposal. However, recent declines in used car market prices have resulted in a corresponding decline in these gains.

Bad debt expense – The Company provides services to its franchisees, which include vehicles provided under a fleet leasing program. The Company historically has experienced several franchisee failures each year, particularly during periods of economic recession or as a result of other factors impacting the travel or rental car industries or individual franchisees. The Company must estimate a reserve for the potential amounts owed by its franchisees that will not be collected. This estimate includes evaluating the financial viability of the franchisee and related collateral and may change as economic or industry conditions change.

The following discussion and analysis provides information that management believes to be relevant to understanding the Company’s consolidated financial condition and results of operations. This discussion should be read in conjunction with the Company’s consolidated financial statements and the related notes thereto included in this report.

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Results of Operations

The following table sets forth the percentage of total revenues in the Company’s consolidated statements of income:


			Years Ended December 31,

			2002			2001			2000

Revenues:
	Vehicle rentals			79.2	%		78.3	%		75.8	%
	Vehicle leasing			14.9			15.4			17.8
	Fees and services			5.0			5.3			5.5
	Other			0.9			1.0			0.9

		Total revenues		100.0			100.0			100.0


Costs and expenses:
	Direct vehicle and operating			35.6			37.1			31.1
	Vehicle depreciation and lease charges, net			33.6			34.8			30.6
	Selling, general and administrative			15.7			16.2			16.8
	Interest expense, net			8.3			8.8			8.8
	Amortization of goodwill			-			0.6			0.5

		Total costs and expenses		93.2			97.5			87.8

Income before income taxes				6.8			2.5			12.2

Income tax expense				2.7			1.2			5.2

Net income				4.1	%		1.3	%		7.0	%

The following table sets forth a breakdown of the Company’s two major sources of revenue:


			Years Ended December 31,

			2002		2001		2000

					(in thousands)
Vehicle rental revenue:
	Dollar		$	780,760	$	756,644	$	802,270
	Thrifty			116,624		65,190		42,398

		Total	$	897,384	$	821,834	$	844,668


Leasing revenue:
	Dollar		$	11,094	$	19,036	$	25,014
	Thrifty			157,698		143,168		173,672

		Total	$	168,792	$	162,204	$	198,686

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Year Ended December 31, 2002 Compared with Year Ended December 31, 2001

Airline traffic continued to decline in 2002 from the already depressed levels of 2001. Dollar, consistent with the rental car industry, responded by reducing fleet capacity to match lower levels of demand. This reduced capacity allowed for increased industry pricing of approximately 6% to 8% in 2002 over 2001 levels. Additionally, Thrifty continued to transition franchised operations to corporate operations, thus, growing its company-owned store base and associated revenues and profits.

Revenues

Total revenues for the year ended December 31, 2002 increased $83.0 million, or 7.9%, to $1.133 billion compared to $1.050 billion in 2001. The increase in total revenues was due primarily to increases in rental revenue of 9.2% and leasing revenue of 4.1%.

The Company’s vehicle rental revenue for 2002 was $897.4 million, a 9.2% increase from 2001. This increase was due primarily to a $51.4 million increase at Thrifty and a $24.1 million increase at Dollar. The rental revenue growth at Thrifty was the result of a shift of several locations from franchised operations to corporate operations. The increase in vehicle rental revenue at Dollar was the result of a 7.5% increase in revenue per day, partially offset by a 4.0% decrease in rental days.

Vehicle leasing revenue for 2002 was $168.8 million, a 4.1% increase from 2001. This increase in vehicle leasing revenue reflects an increase of $14.5 million in Thrifty’s leasing revenue and a decrease of $7.9 million in Dollar’s leasing revenue. The overall increase was primarily due to strong growth in Thrifty franchisee leasing volume partially offset by the impact of shifting several locations from franchised operations to corporate operations at both Dollar and Thrifty.

Fees and services revenue increased 0.3% to $56.2 million compared to 2001, primarily due to an increase of $3.8 million at Thrifty offset by a decrease of $3.7 million at Dollar.

Expenses

Total expenses increased 3.1% from $1.024 billion in 2001 to $1.056 billion in 2002. This increase was due primarily to a $52.2 million, or 20.5% increase for Thrifty partially offset by a $20.4 million, or 2.6% decrease at Dollar. Total expenses as a percentage of revenue decreased to 93.2% in 2002 from 97.5% in 2001.

Direct vehicle and operating expenses for 2002 increased $14.0 million, or 3.6%, comprised of a $13.7 million increase at Thrifty and a $0.3 million increase at Dollar. The overall increase was due to higher costs associated with operating additional corporate stores, costs associated with higher depreciable fleet and transaction levels and higher insurance costs. Direct vehicle and operating expenses were 35.6% of revenue for 2002, compared to 37.1% of revenue for 2001.

Net vehicle depreciation expense and lease charges for 2002 increased $14.9 million, or 4.1%, from 2001 consisting of a $28.3 million increase at Thrifty and a $13.4 million decrease at Dollar. Net vehicle depreciation expense increased $24.1 million, or 6.7%, due to a 4.9% increase in depreciable fleet and a 1.7% increase in the average depreciation rate at both Dollar and Thrifty. The disposition of Non-Program Vehicles resulted in a net vehicle gain of $10.2 million in 2002 and $13.8 million in 2001. Lease charges for vehicles leased from third parties decreased $12.8 million primarily due to fewer vehicles leased during 2002.

Selling, general and administrative expenses of $177.6 million for 2002 increased from $169.6 million in 2001, comprised primarily of a $6.9 million increase at Thrifty and a $0.6 million increase at Dollar. The higher costs were due primarily to higher incentive compensation and to costs associated with the implementation of the new corporate structure.

Net interest expense increased $1.1 million, or 1.1% to $93.4 million in 2002 primarily due to higher average vehicle debt, partially offset by lower interest rates.

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The tax provision for 2002 was $30.7 million. The effective tax rate of 39.6% for 2002 was lower than the 47.2% in 2001. The decrease in the effective tax rate was due primarily to the change in the relationship between permanent differences, including goodwill amortization, and Canadian operations to income before income taxes. The effective tax rate for 2002 differs from the U.S. statutory tax rate due primarily to state and local taxes.

Operating Results

The Company had income before income taxes of $77.5 million for 2002 as compared to $26.2 million in 2001. This increase was primarily due to a $34.1 million increase at Dollar and a $16.6 million increase at Thrifty.

Year Ended December 31, 2001 Compared with Year Ended December 31, 2000

The Company’s operating results were negatively impacted in 2001 by the slowing U.S. economy, weaker rental car pricing and the dramatic impact on travel in the aftermath of the September 11 terrorist attacks. In addition to the decline in revenue caused by decreased volume and pricing, the Company experienced lower vehicle utilization, higher bad debt expenses associated with its franchisees, and incurred other expenses associated with right-sizing its cost structure, particularly following September 11.

Revenues

Total revenues for the year ended December 31, 2001 decreased $64.2 million, or 5.8%, to $1.050 billion compared to $1.114 billion in 2000. The decline in total revenues was due to decreases in leasing revenue of 18.4%, fees and services revenue of 8.4% and rental revenue of 2.7%.

The Company’s vehicle rental revenue for 2001 was $821.8 million, a 2.7% decrease from 2000. This decrease was due primarily to a $45.6 million decrease at Dollar, partially offset by a $22.8 million increase at Thrifty. The decline in vehicle rental revenue at Dollar was the result of a 1.5% decrease in rental days combined with a 4.2% decrease in revenue per day. The rental revenue growth at Thrifty was the result of a shift of several locations from franchised operations to corporate operations.

Vehicle leasing revenue for 2001 was $162.2 million, an 18.4% decrease from 2000. This decrease in vehicle leasing revenue reflects a decrease of $30.5 million, or 17.6%, in Thrifty’s leasing revenue and a decrease of $6.0 million, or 23.9% in Dollar’s leasing revenue. This decrease was primarily due to a 15.3% decline in the average lease fleet, due to the shift of locations from franchised operations to corporate operations, combined with a 3.6% decline in the average lease rate, partially due to a decline in interest rates.

Fees and services revenue decreased 8.4% to $56.1 million compared to 2000, primarily due to the shift of locations from franchised operations to corporate operations.

Expenses

Total expenses increased 4.7% from $977.9 million in 2000 to $1.024 billion in 2001. This increase was due primarily to a $19.8 million, or 2.6% increase for Dollar and a $26.7 million, or 11.7% increase at Thrifty. Total expenses as a percentage of revenue rose to 97.5% in 2001 from 87.8% in 2000.

Direct vehicle and operating expenses for 2001 increased $43.8 million, or 12.7%, comprised of a $18.8 million increase at Dollar and a $25.0 million increase at Thrifty. The overall increase at Dollar was due to higher insurance costs and vehicle-related expenses, including costs related to accelerated vehicle returns in right-sizing the cost structure, and to costs associated with operating additional corporate stores. The increase at Thrifty was primarily due to higher costs related to the operation of additional corporate stores that were previously operated by franchisees and to increased bad debt expenses for franchisee receivables. Direct vehicle and operating expenses were 37.1% of revenue for 2001, compared to 31.1% of revenue for 2000.

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Net vehicle depreciation expense and lease charges for 2001 increased $25.4 million, or 7.5%, from 2000 consisting of a $21.8 million increase at Dollar and a $3.6 million increase at Thrifty. Net vehicle depreciation expense increased $20.7 million, or 6.1%, due to a 7.6% increase in the average depreciation rate at both Dollar and Thrifty, partially offset by a 1.4% decrease in depreciable fleet. The disposition of Non-Program Vehicles resulted in net vehicle gains of $13.8 million in 2001 and $26.1 million in 2000. Lease charges for vehicles leased from third parties decreased $7.6 million due to fewer vehicles leased during 2001.

Selling, general and administrative expenses of $169.6 million for 2001 decreased from $187.7 million in 2000, comprised primarily of a $17.5 million decrease at Dollar and a $0.1 million decrease at Thrifty. The lower costs were due primarily to lower personnel related costs, sales and marketing costs and other administrative costs in 2001. In 2001, the Company incurred $2.5 million in severance costs associated with layoffs of headquarters personnel due to the impacts of September 11.

Net interest expense decreased $5.3 million, or 5.5% to $92.4 million in 2001 primarily due to lower interest rates, partially offset by higher average vehicle debt.

The tax provision for 2001 was $12.4 million. The effective tax rate of 47.2% for 2001 was higher than the 42.8% in 2000. The increase in the effective tax rate was due primarily to the change in the relationship between permanent differences and Canadian operations to income before income taxes. The effective tax rate differs from the U.S. statutory tax rate due primarily to non-deductible goodwill amortization and state and local taxes.

Operating Results

The Company had income before income taxes of $26.2 million for 2001 as compared to $136.5 million in 2000. This decline was due to a $77.0 million decrease at Dollar and a $33.3 million decrease at Thrifty.

Liquidity and Capital Resources

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 for 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 and insurance bonds. Cash generated by operating activities of $624.0 million for 2002 is primarily the result of net income, adjusted for depreciation and favorable tax programs (discussed below), which provided the Company tax refunds in 2002 as well as deferral of tax payments on 2002 earnings to future years. The liquidity necessary for purchasing vehicles is 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 is 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 portion of the secured vehicle financing is supported by 364-day bank facilities, which are renewable annually. These facilities were renewed in December 2002 and February 2003. A significant portion of the secured vehicle financing consists of asset backed notes, which have varying maturities through 2006. 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 and expects to issue approximately $375 million in additional notes during 2003, partially to replace maturing notes of $273 million. The Company has experienced increases during the last year in the level of credit enhancement or additional collateral required for new asset backed notes, the Conduit Facility and the Commercial Paper Program. These increased requirements have reduced liquidity available for other corporate purposes. The Company believes it has sufficient resources to meet these requirements.

-31-

Cash used in investing activities was $1.2 billion. The principal use of cash in investing activities was the purchase of revenue-earning vehicles, which totaled $3.4 billion ($1.9 billion at Dollar and $1.5 billion at Thrifty), which was partially offset by $2.5 billion ($1.5 billion at Dollar and $1.0 billion at Thrifty) 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. Fleet levels are the lowest in the fourth quarter when rental demand is at a seasonal low. The Company expects to continue to fund its revenue-earning vehicles with cash provided from operations and increased secured vehicle financing. The Company also used cash for non-vehicle capital expenditures of $11.4 million. These expenditures consist primarily of airport facility improvements for the Company’s rental locations and investments in information technology equipment and systems. The Company estimates non-vehicle capital expenditures to be approximately $35 million in 2003. In addition, the Company will pursue the acquisition of certain franchisee operations, subject to Revolving Credit Facility restrictions. Future franchisee acquisition expenditures are expected to be financed with cash provided from operations.

Cash received in financing activities was $707.5 million primarily due to the issuance of $350 million in asset backed notes in June 2002, the issuance of $250 million under the asset backed Variable Funding Note Purchase Facility (“the Conduit Facility”) and an increase in the net daily issuance of commercial paper totaling approximately $180 million, partially reduced by the maturity of asset backed notes totaling $170 million.

In March of 2002, Congress passed the Job Creation and Worker Assistance Act of 2002 (“the Act”), which includes a provision allowing bonus depreciation on certain depreciable assets acquired after September 10, 2001 and before September 11, 2004, which significantly increases the amount of tax basis depreciation that can be claimed on the Company’s tax return. Also, during 2002, the Company utilized a like-kind exchange program for its vehicles whereby tax basis gains on disposal of eligible revenue-earning vehicles are deferred (the “Like-Kind Exchange Program”). To qualify for Like-Kind Exchange Program treatment, the Company exchanges (through a qualified intermediary) vehicles being disposed of with vehicles being purchased allowing the Company to carry-over the tax basis of vehicles sold to replacement vehicles, with certain adjustments.

The Company estimates the Act will effectively eliminate the payment of cash income taxes through 2004 and will allow it to carry back these benefits to obtain refunds of taxes paid in prior years, of which approximately $43.2 million was received in 2002. The Act improves the Company’s liquidity position by increasing cash and cash equivalents due to significantly reduced cash required for tax payments and from refunds of taxes paid in prior years. The Company estimates the Like-Kind Exchange Program will extend the period in which it will not pay cash income taxes beyond 2004, when the bonus depreciation provision included in the Act expire. The Like-Kind Exchange Program will also significantly increase the amount of cash and investments restricted for the purchase of replacement vehicles, especially during seasonally reduced fleet periods. During seasonally low fleet periods, the Company will carry higher restricted cash balances and maintain higher debt as compared to prior periods as a result of utilizing the Like-Kind Exchange Program. At December 31, 2002, restricted cash and investments totaled $334.8 million, increasing $286.8 million for the year ended December 31, 2002. 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 partnership program and the Like-Kind Exchange Program.

The Company has various commitments primarily related to long-term debt, commercial paper and short-term borrowings outstanding for vehicle purchases, airport concession fee and operating lease commitments related to airport and other facilities, and vehicle purchases. The Company expects to fund these commitments with cash generated from operations, sales proceeds from disposal of used vehicles and continuation of asset backed note issuances as existing notes mature. The following table provides details regarding the Company’s contractual cash obligations and other commercial commitments subsequent to December 31, 2002:

-32-


			Payments due or commitment expiration by period

			(In thousands)
			Total		2003		2004		2005		2006		2007		Beyond 5 Years
Contractual cash obligations:
	Long-term debt (1)		$	1,379,614	$	273,364	$	269,036	$	603,881	$	233,333	$	-	$	-
	Commercial paper outstanding (1)			308,634		308,634		-		-		-		-		-
	Other short-term borrowings (1)			536,790		536,790		-		-		-		-		-

		Subtotal - Vehicle debt and obligations		2,225,038		1,118,788		269,036		603,881		233,333		-		-

	Operating lease commitments			115,055		22,096		17,224		13,912		11,070		9,875		40,878
	Airport concession fee commitments			182,650		35,789		27,407		24,953		20,186		17,102		57,213
	Vehicle purchase commitments			710,419		710,419		-		-		-		-		-

		Total contractual cash obligations	$	3,233,162	$	1,887,092	$	313,667	$	642,746	$	264,589	$	26,977	$	98,091

Other commercial commitments:
		Letters of credit	$	171,189	$	107,189	$	27,375	$	36,625	$	-	$	-	$	-

(1) Further discussion of long - term debt, commercial paper outstanding and short - term borrowings is described below and in Note 9 of the Notes to Consolidated Financial Statements. Amounts exclude related discounts, where applicable.

Asset Backed Notes

The asset backed note program is comprised of $1.38 billion in asset backed notes with maturities ranging from 2003 to 2006. Borrowings under the asset backed notes are secured by eligible vehicle collateral and bear interest at fixed rates ranging from 4.77% to 7.10% on $1.17 billion, including certain floating rate notes swapped to fixed rates, and at floating rates on $208.4 million ranging from LIBOR plus 0.64% to LIBOR plus 1.05%. Proceeds from the asset backed notes that are temporarily not utilized for financing vehicles and certain related receivables are maintained in restricted cash and investment accounts, which were approximately $329.4 million at December 31, 2002.

In June 2002, Rental Car Finance Corp. issued $350 million of asset backed notes (the “2002 Series Notes”) to replace maturing asset backed notes and provide additional vehicle financing capacity. The 2002 Series Notes are floating rate notes that have a term of three years. In conjunction with the issuance of the 2002 Series Notes, the Company also entered into an interest rate swap agreement to convert one-half of this floating rate debt to a fixed rate.

Conduit Facility

In April 2002 and August 2002, additional banks entered into the existing $275 million Conduit Facility increasing the facility to $375 million. In December 2002, the Conduit Facility was renewed at a reduced capacity of $250 million. In March 2003, the size of the Conduit Facility is expected to increase to $275 million to match increased fleet levels as an existing bank is anticipated to increase its commitment. Proceeds are used for financing of vehicle purchases and for periodic refinancing of asset backed notes. The Conduit Facility generally bears interest at market-based commercial paper rates and is renewed annually.

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Commercial Paper Program and Liquidity Facility

At December 31, 2002, the Company’s commercial paper program (the “Commercial Paper Program”) had a maximum capacity of $589 million supported by a $522 million, 364-day liquidity facility (the “Liquidity Facility”). Borrowings under the Commercial Paper Program are secured by eligible vehicle collateral and bear interest at market-based commercial paper rates. At December 31, 2002, the Company had $308.0 million in commercial paper outstanding under the Commercial Paper Program. The Commercial Paper Program and the Liquidity Facility are renewable annually. The Commercial Paper Program peaked in size during the third quarter of 2002 when it reached $369.7 million to support the seasonal increase in vehicle fleet.

The Commercial Paper Program was renewed for a 364-day period effective February 24, 2003, at a maximum capacity of $554 million, backed by a renewal of the Liquidity Facility totaling $485 million.

Vehicle Debt and Obligations

Thrifty has financed its Canadian vehicle fleet through a five-year fleet securitization program which began in February 1999. Under this program, Thrifty can obtain vehicle financing up to CND$150 million funded through a bank commercial paper conduit. At December 31, 2002, Thrifty had approximately CND$92.7 million (US$59.0 million) funded under this program.

Vehicle manufacturer and bank lines of credit provided $384 million in capacity at December 31, 2002, an increase of approximately $192 million from December 31, 2001. Borrowings of $227.8 million were outstanding under these lines at December 31, 2002. These lines of credit are secured by the vehicles financed under these facilities and renewable annually.

Revolving Credit Facility

The Company has a $215 million senior secured, revolving credit facility (the “Revolving Credit Facility”) which is used to provide cash for operating activities with a working capital sublimit of $70 million and letters of credit. This facility expires August 2, 2005. The availability of funds under the Revolving Credit Facility is subject to the Company’s continued compliance with certain covenants, including a covenant that sets the maximum amount the Company can spend annually on the acquisition of non-vehicle capital assets, and certain financial covenants including a minimum net worth, a minimum level of adjusted EBITDA, a maximum leverage ratio, a minimum fixed charge coverage ratio, a minimum interest coverage ratio and the restriction of cash dividends and share repurchases. The Company is in compliance with all covenants. In early 2003, the Company completed an amendment of the Revolving Credit Facility affecting a financial covenant, which also included limiting expenditures for non-vehicle capital assets and franchisee acquisitions if certain covenant levels are not maintained. At December 31, 2002, the Company had letters of credit outstanding under the Revolving Credit Facility of approximately $168.2 million and no working capital borrowings. The Company has increased the use of letters of credit to support insurance programs, interest rate swaps and asset backed vehicle financing programs.

Debt Servicing Requirements

The Company will continue to have substantial debt and debt service requirements under its financing arrangements. As of December 31, 2002, the Company’s total consolidated debt and other obligations were approximately $2.2 billion, substantially all of which was secured debt for the purchase of vehicles. The majority of the Company’s vehicle debt is issued by special purpose finance entities as described herein all of which are fully consolidated into the Company financial statements. The Company has scheduled annual principal payments of approximately $1.1 billion in 2003, $269 million in 2004, $604 million in 2005 and $233 million in 2006.

The Company intends to use cash generated from operations and from the sale of vehicles for debt service and, subject to restrictions under its debt instruments, to make capital investments. The Company has historically repaid its debt and funded its capital investments (aside from growth in its rental fleet) with cash provided from operations and from the sale of vehicles. The Company has funded growth in its vehicle fleet by incurring additional secured vehicle debt and cash generated from operations. The Company expects to incur additional debt from time to time to the extent permitted under the terms of its debt instruments.

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The Company has significant requirements for bonds and letters of credit to support its insurance programs and airport concession obligations. At December 31, 2002, various insurance companies had issued approximately $45.4 million in bonds to secure these obligations.

Interest Rate Risk

The Company’s results of operations depend significantly on prevailing levels of interest rates because of the large amount of debt it incurs to purchase vehicles. In addition, the Company is exposed to increases in interest rates because a portion of its debt bears interest at floating rates. The Company estimates that, in 2003, approximately 45% of its average debt will bear interest at floating rates. The amount of the Company’s financing costs affects the amount Dollar, Thrifty and their franchisees must charge their customers to be profitable. See Note 9 of Notes to Consolidated Financial Statements.

Inflation

The increased acquisition cost of vehicles is the primary inflationary factor affecting the Company. Many of the Company’s other operating expenses are also expected to increase with inflation. Management does not expect that the effect of inflation on the Company’s overall operating costs will be greater for the Company than for its competitors.

New Accounting Standards

In June 2001, the Financial Accounting Standards Board (“FASB”) approved the issuance of SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also specifies the types of acquired intangible assets that are required to be recognized and reported separately from goodwill and those acquired intangible assets that are required to be included in goodwill. Effective January 1, 2002, SFAS No. 142 requires that goodwill no longer be amortized, but instead tested for impairment at least annually. SFAS No. 142 also requires recognized intangible assets to be amortized over their respective estimated useful lives and reviewed for impairment. Any recognized intangible asset determined to have an indefinite useful life will not be amortized, but instead tested for impairment in accordance with the standard until its life is determined to no longer be indefinite.

The Company adopted the provisions of SFAS No. 141 and SFAS No. 142 as required on January 1, 2002, with the exception of the earlier adoption of the requirement to use the purchase method of accounting for all business combinations initiated after June 30, 2001. On January 1, 2002, the Company ceased amortization of goodwill. During the first quarter of 2002, the Company completed its transitional goodwill impairment test in accordance with SFAS No. 142 for each reporting unit and determined that goodwill was not impaired. Additionally, during the second quarter, the Company completed the annual impairment test of goodwill for 2002 and concluded goodwill was not impaired. The Company will complete the annual impairment test on goodwill during the second quarter of each year unless circumstances arise that require more frequent testing.

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company adopted the provisions of SFAS No. 143 as required on January 1, 2003. Adoption of SFAS No. 143 is not expected to have a material effect on the consolidated financial statements of the Company.

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In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which was effective for fiscal years beginning after December 15, 2001. The Company adopted the provisions of SFAS No. 144 as required on January 1, 2002. This standard had no effect on the Company’s consolidated financial statements upon adoption.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement supersedes Emerging Issues Task Force (“EITF”) No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.” Under this statement, a liability or a cost associated with a disposal or exit activity is recognized at fair value when the liability is incurred rather than at the date of an entity’s commitment to an exit plan as required under EITF No. 94-3. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption permitted. The Company adopted the provisions of SFAS No. 146 as required on January 1, 2003. Adoption of SFAS No. 146 is not expected to have a material effect on the consolidated financial statements of the Company.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This interpretation elaborates on the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation it has undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of the interpretation are applicable on a prospective basis to guarantees issued or modified beginning in 2003. The disclosure requirements are effective for interim or annual financial statements beginning on December 31, 2002.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The table below provides information about the Company’s market sensitive financial instruments and 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 (refer to Item 8., Note 10 to the consolidated financial statements). 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.


Expected Maturity Dates as of December 31, 2002	2003			2004			2005			2006			Total		Fair Value December 31, 2002

(in thousands)

Debt

Vehicle debt and obligations - floating rates	$	805,875		$	-		$	186,135		$	-		$	992,010	$	991,424

Weighted Average interest rates		2.45	%		-			2.10	%		-

Vehicle debt and obligations - fixed rates (1)	$	251,095		$	269,036		$	417,746		$	233,333		$	1,171,210	$	1,228,643

Weighted Average interest rates		6.40	%		6.22	%		5.70	%		6.04	%

Vehicle debt and obligations - Canadian dollar denominated	$	61,818		$	-		$	-		$	-		$	61,818	$	61,818

Weighted Average interest rates		3.11	%		-			-			-

(1) Fixed rate vehicle debt and obligations include the $350 million Series 2001 Notes and $175 million relating to the Series 2002 Notes swapped from floating interest rates to fixed interest rates.


Expected Maturity Dates as of December 31, 2001	2002			2003			2004			2005			2006			Total		Fair Value December 31, 2001

(in thousands)

Debt

Vehicle debt and obligations - floating rates	$	260,031		$	22,269		$	-		$	11,135		$	-		$	293,435	$	293,204

Weighted Average interest rates		3.05	%		2.89	%		-			2.99	%		-

Vehicle debt and obligations - fixed rates (1)	$	171,786		$	251,200		$	269,092		$	242,746		$	233,333		$	1,168,157	$	1,196,178

Weighted Average interest rates		6.46	%		6.40	%		6.22	%		6.37	%		6.04	%

Vehicle debt and obligations - Canadian dollar denominated	$	55,651		$	-		$	-		$	-		$	-		$	55,651	$	55,651

Weighted Average interest rates		2.83	%		-			-			-			-

(1) Fixed rate vehicle debt and obligations include the $350 million Series 2001 Notes swapped from a floating interest rate to a fixed interest rate.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders of
Dollar Thrifty Automotive Group, Inc.:

We have audited the accompanying consolidated balance sheets of Dollar Thrifty Automotive Group, Inc. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Dollar Thrifty Automotive Group, Inc. and subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Notes 2 and 8 to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets effective January 1, 2002 due to adopting Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

Tulsa, Oklahoma
February 28, 2003

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DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(In Thousands Except Per Share Data)


			2002		2001		2000
REVENUES:
	Vehicle Rentals		$	897,384	$	821,834	$	844,668
	Vehicle leasing			168,792		162,204		198,686
	Fees and services			56,237		56,057		61,166
	Other			10,781		10,075		9,850

		Total revenues		1,133,194		1,050,170		1,114,370

COSTS AND EXPENSES:
	Direct vehicle and operating			403,946		389,917		346,091
	Vehicle depreciation and lease charges, net			380,760		365,894		340,448
	Selling, general and administrative			177,562		169,599		187,711
	Interest expense, net of interest income of $4,975, $6,570 and $9,288			93,427		92,365		97,703
	Amortization of goodwill			-		6,178		5,941

		Total costs and expenses		1,055,695		1,023,953		977,894

INCOME BEFORE INCOME TAXES				77,499		26,217		136,476

INCOME TAX EXPENSE				30,668		12,380		58,467

NET INCOME			$	46,831	$	13,837	$	78,009


Earnings per share:
	Basic		$	1.93	$	0.57	$	3.23

	Diluted		$	1.88	$	0.57	$	3.18

See notes to consolidated financial statements.

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DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2002 AND 2001

(In Thousands Except Share and Per Share Data)



		2002			2001
ASSETS:
Cash and cash equivalents		$	143,485		$	37,532
Restricted cash and investments			334,849			48,090
Receivables, net			249,912			197,224
Prepaid expenses and other assets			59,785			64,946
Revenue-earning vehicles, net			1,994,200			1,525,553
Property and equipment, net			92,181			100,587
Income taxes receivable			61,314			8,149
Software, net			15,381			16,552
Goodwill, net			165,327			165,059

		$	3,116,434		$	2,163,692

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Accounts payable		$	53,660		$	25,741
Accrued liabilities			164,847			112,626
Deferred income tax liability			134,637			22,132
Public liability and property damage			39,506			23,139
Vehicle debt and obligations			2,224,303			1,516,733

	Total liabilities		2,616,953			1,700,371

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value: Authorized 10,000,000 shares; none outstanding			-			-
Common stock, $.01 par value: Authorized 50,000,000 shares; issued and outstanding 24,599,890 and 24,310,816, respectively			246			243
Additional capital			717,081			708,962
Accumulated deficit			(190,787	)		(237,618	)
Accumulated other comprehensive loss			(27,059	)		(8,266	)

	Total stockholders’ equity		499,481			463,321

		$	3,116,434		$	2,163,692

See notes to consolidated financial statements.

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DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(In Thousands Except Share and Per Share Data)


			Common Stock $.01 Par Value				Additional		Accumulated			Accumulated Other Comprehensive			Treasury Stock							Total Stockholders'
			Shares		Amount		Capital		Deficit			Income (Loss)				Shares			Amount			Equity

BALANCE, JANUARY 1, 2000				24,158,429	$	242	$	709,040	$	(329,464	)	$	(691	)			-		$	-		$	379,127
	Issuance of common shares for director compensation			2,164		-		40		-			-				-			-			40
	Stock option transactions			31,300		-		582		-			-				-			-			582
	Performance share incentive plan			-		-		658		-			-				-			-			658
	Comprehensive income:
		Net income		-		-		-		78,009			-				-			-			78,009
		Foreign currency translation		-		-		-		-			(277	)			-			-			(277	)

	Total comprehensive income			-		-		-		78,009			(277	)			-			-			77,732

BALANCE, DECEMBER 31, 2000				24,191,893		242		710,320		(251,455	)		(968	)			-			-			458,139
	Issuance of common shares for director compensation			3,828		-		60		-			-				-			-			60
	Issuance of common shares for 401(k) company match			12,562		-		162		-			-				-			-			162
	Stock option transactions			102,074		1		2,035		-			-				-			-			2,036
	Performance share incentive plan:
		Purchase of common stock for the treasury		-		-		-		-			-				(167,241	)		(3,615	)		(3,615	)
		Issuance of common stock in settlement of vested performance shares:




PART I

	ITEM 1.	BUSINESS	4

	ITEM 2.	PROPERTIES	21

	ITEM 3.	LEGAL PROCEEDINGS	21

	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	22

PART II

	ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	23

	ITEM 6.	SELECTED FINANCIAL DATA	24

	ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION	26

	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37

	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	38

	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	68

PART III

	ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	68

	ITEM 11.	EXECUTIVE COMPENSATION	68

	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	68

	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	68

	ITEM 14.	CONTROLS AND PROCEDURES	68



PART IV

ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K	69

SIGNATURES		85

CERTIFICATIONS		86

INDEX TO EXHIBITS		88

ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
	RESULTS OF OPERATIONS