10-K 1 form10k123104.htm

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, 2004


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 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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2004, the last business day of the registrant's most recently completed second fiscal quarter, based on the closing price of the stock on the New York Stock Exchange on such date was $683,855,454.

The number of shares outstanding of the registrant’s Common Stock as of February 28, 2005 was 25,260,838.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 20, 2005, are incorporated by reference in Part III.

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DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.

FORM 10-K

PART I

ITEM

1. BUSINESS

ITEM

2. PROPERTIES

ITEM

3. LEGAL PROCEEDINGS

ITEM

4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM

5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED

STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

ITEM

6. SELECTED FINANCIAL DATA

ITEM

7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATION

ITEM

7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

ITEM

8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM

9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM

9A. CONTROLS AND PROCEDURES

ITEM

9B. OTHER INFORMATION

PART III

ITEM

10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM

11. EXECUTIVE COMPENSATION

ITEM

12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM

13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM

14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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PART IV

ITEM

15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

SIGNATURES

INDEX TO EXHIBITS

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 Operation” 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; natural hazards or catastrophes; incidents of terrorism; airline travel patterns; changes in capital availability or cost; costs and other terms related to the acquisition and disposition of automobiles; systems or communications failures; costs of conducting business and changes in structure or operations; and certain regulatory and environmental matters and litigation risks. Should one or more of these risks or uncertainties, among others, materialize, actual results could vary from those estimated, anticipated or projected. Dollar Thrifty Automotive Group, Inc. undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

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PART I

Table of Contents

ITEM 1.

BUSINESS

Company Overview

General

Dollar Thrifty Automotive Group, Inc., a Delaware corporation (“DTG”), owns DTG Operations, Inc. (“DTG Operations”), Dollar Rent A Car, Inc. and Thrifty, Inc. Thrifty, Inc. owns Thrifty Rent-A-Car System, Inc. and Thrifty Car Sales, Inc. (“Thrifty Car Sales”), which operates a franchised retail used car sales network. Thrifty Rent-A-Car System, Inc. owns Dollar Thrifty Automotive Group Canada Inc. (“DTG Canada”). On January 1, 2003, DTG began operating under a corporate structure which realigned the prior brand structure to a functional structure, combining the management of operations and administrative functions for both the Dollar and Thrifty brands. DTG Operations operates company-owned stores under the Dollar brand and the Thrifty brand, provides vehicle leasing to franchisees and operates reservation centers for both brands. Thrifty Rent-A-Car System, Inc. and Dollar Rent A Car, Inc. conduct franchising activities and sales and marketing activities for their respective brands. 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 Rent A Car, Inc., the Dollar brand and DTG Operations operating under the Dollar brand are individually and collectively referred to hereafter as “Dollar”. Thrifty, Inc., Thrifty Rent-A-Car System, Inc., Thrifty Car Sales, the Thrifty brand and DTG Operations operating under the Thrifty brand are individually and collectively 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. 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, government business and independent business travelers. As of December 31, 2004, Dollar and Thrifty had 859 locations in the United States and Canada of which 352 were company-owned stores and 507 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.

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 focuses on serving both the airport and local markets operating through a network of company-owned stores and franchisees. Dollar derives a majority of its U.S. revenues from providing rental vehicles and services directly to rental customers, while Thrifty has historically derived its revenues primarily from franchising fees and services including vehicle leasing. However, Thrifty has shifted to operating more company-owned stores by acquiring franchisee locations in key markets and now derives a majority of its revenues from corporate operations. Dollar and Thrifty incur the costs of operating company-owned stores and their revenues are directly affected by changes in rental demand and pricing.

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”). DTG Operations, formerly known as 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. was incorporated in December 1998.

Available Information

The Company makes available free of charge on or through its Internet Web site its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to such 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

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Securities and Exchange Commission (“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.

The Company has a code of business conduct, which is available on the Company’s Web site under the heading, “About DTG”. The Company’s Board of Directors has adopted a corporate governance policy and Board committee charters, which are updated periodically and can be found on the Company’s Web site under the heading, “Corporate Governance”. A copy of the code of business conduct, the corporate governance policy and the charters are available upon request to the Company’s headquarters as listed on the front of this Form 10-K, attention “Corporate Communications” department.

The annual Chief Executive Officer certification required by the New York Stock Exchange Listed Company Manual was submitted to the New York Stock Exchange on May 24, 2004.

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 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 component 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 consolidated ownership of the top eight brands which are now owned by just five companies. Enterprise is privately held, Hertz is a subsidiary of Ford, Budget and Avis are operating subsidiaries of Cendant Corporation, Dollar and Thrifty are operating subsidiaries of the Company, and Alamo and National are operating subsidiaries of Vanguard Car Rental USA, Inc., an affiliate of Cerberus Capital Management, L.P., a private investment group.

Prior to 2001, the car rental industry had experienced steady growth over the previous 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 and car rental companies reduced their fleet size in response to lower levels of demand. Airline passenger traffic has recovered and in 2004 exceeded the previous peak levels of traffic in 2000. The future growth of the car rental industry will be determined by general economic conditions and the level of leisure and business travel.

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 2004, the Company’s average monthly fleet size ranged from a low of approximately 93,000 vehicles in the first quarter to a high of approximately 149,000 vehicles in the third quarter.

The Company

The Company has two value rental car brands, Dollar and Thrifty, with a strategy to operate company-owned stores in the top 75 airport markets and in key leisure destinations in the United States. In the United States, the Dollar and Thrifty brands remain separate, but operate under a single

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management structure and share vehicles, back-office employees and facilities, where possible. The Company also operates company-owned stores in the eight largest airports in Canada under DTG Canada. In Canada, the company-owned stores are primarily co-branded.

The Company also offers franchise opportunities in smaller markets in the United States and Canada and in all markets internationally so that franchisees can operate under the Dollar or Thrifty trademarks or dual franchise and operate both brands in one market.

Summary Operating Data of the Company

Years Ended December 31,

2004 2003 2002

(in thousands)

Revenues:

Revenue from U.S. and
Canada company-owned
stores
$ 1,282,386 $ 1,019,476 $ 901,790

Revenue from U.S. and
Canada franchisees
130,855 198,039 225,885

Revenue from international
franchisees
5,128 4,515 4,192

Other revenue
5,611 5,856 1,327

Total revenues
$ 1,423,980 $ 1,227,886 $ 1,133,194

As of December 31,

2004 2003 2002

Rental locations:

U.S. and Canada company-
owned stores
352 310 224

U.S. and Canada franchisee
locations
507 513 579

Franchisees:

U.S. and Canada
229 248 243

International
112 99 106

Dollar and Thrifty Brands

Dollar

Dollar’s main focus is serving the airport vehicle rental market, which is comprised of business and leisure travelers. The majority of its locations are on or near airport facilities. At December 31, 2004, Dollar had 105 company-owned and franchised in-terminal airport locations. Dollar operates primarily through company-owned stores in the United States, and also licenses to independent franchisees which operate as a part of the Dollar brand system in the United States, Canada and abroad. In January 2003, Dollar re-acquired its master franchise rights in Canada and began acquiring the operations of franchisees in the eight largest airport markets of Calgary, Winnipeg, Ottawa, Toronto, Montreal, Halifax, Edmonton and Vancouver. Dollar successfully completed the acquisition of all franchisee operations in these top markets by January 2004, when it purchased the franchise operation in Vancouver.

As of December 31, 2004, Dollar’s vehicle rental system included 349 locations in the United States and Canada, consisting of 185 company-owned stores and 164 franchisee locations. Dollar’s total rental revenue generated by company-owned stores was $877 million for the year ended December 31, 2004.

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Thrifty

Historically, Thrifty’s main focus had been on franchising and franchise support services. However, Thrifty is shifting to operating more company-owned stores by acquiring franchisee locations in key markets. Consistent with 2003, Thrifty made significant progress during 2004 in acquiring franchised operations and converting them to company-owned locations. Thrifty U.S. company-owned locations increased to 115 at December 31, 2004 from 87 at December 31, 2003. Thrifty’s U.S. company-owned stores and its franchisees derive approximately 80% of their combined rental revenues from the airport market and approximately 20% from the local market. Thrifty’s approach of serving both the airport and local markets 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 demand between these markets. At December 31, 2004, Thrifty had 98 company-owned and franchised in-terminal airport locations.

As of December 31, 2004, Thrifty’s vehicle rental system included 510 rental locations in the United States and Canada, consisting of 343 franchisee locations and 167 company-owned stores. Thrifty’s total rental revenue generated by company-owned stores was $399 million for the year ended December 31, 2004.

Corporate Operations

United States

Beginning in 2003, the Company implemented a new operating model for U.S. Dollar and Thrifty company-owned stores, which included maintaining separate airport counters, bussing, reservations, marketing and all other customer contact activities, while using a single management team for both brands. In addition, this operating model included sharing vehicles, back-office employees and service facilities, where possible.

As of December 31, 2004, the Company operates the Dollar brand in 55 and the Thrifty brand in 39 of the top 75 airport markets in the United States and operates both brands in 35 of these top 75 airport markets. During 2004, the Company added Thrifty in ten and Dollar in one top 75 airport markets by acquiring franchisee locations or opening greenfield locations.

Canada

The Company operates in Canada through DTG Canada. Thrifty has historically had a strong corporate presence in Canada, and, during 2003, Dollar acquired its master franchise rights in Canada and began re-acquiring its franchisee locations in the eight largest airport markets in Canada. The Company operates corporate stores in all eight of the largest airport markets in Canada, which includes Calgary, Winnipeg, Ottawa, Toronto, Montreal, Halifax, Edmonton and Vancouver. The majority of the markets are operated under the Company’s co-branding strategy in Canada where both the Dollar and Thrifty brands are represented at one shared location. These operations are important to maintaining a national airport presence in Canada, where DTG Canada has significant airport concessions and lease commitments.

Franchise Acquisition Program

The Company acquires assets, operations and locations of franchisees. The Company is pursuing opportunities to acquire both Dollar and Thrifty franchise operations in the top 75 U.S. airport markets and other key leisure markets. Historically, Thrifty had established company-owned stores only upon the financial failure of a franchisee. However, Thrifty is shifting to operating more company-owned stores by acquiring franchisee locations in key markets. In 2004, Thrifty continued its strategy to transition from a franchise operation to a corporate operation in key U.S. markets.

During 2004, the Company acquired the Thrifty franchise operations in 13 U.S. markets in Greensboro, Aspen, Raleigh-Durham, Ft. Myers, Orlando, Tampa, Chicago (O’Hare and Midway), Corpus Christi, Los Angeles, San Diego, Boise, and Orange County and the Dollar franchise operations in two U.S. markets in Aspen and Boise. Dollar and Thrifty generally have the right of first refusal on the sale of a franchise operation. As of December 31, 2004, the Company estimates it has completed approximately 70% of its acquisition program.

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Tour Rentals

Vehicle rentals by customers of foreign and U.S. tour operators generated approximately $192 million or 15% of the Company’s rental revenues for the year ended December 31, 2004. These rentals are usually part of tour packages that can also include air travel and hotel accommodations. No single tour operator account generated in excess of 3% of the Company’s 2004 rental revenues.

Other

Dollar and Thrifty reduce costs through bulk purchasing, applying performance benchmarks and developing and implementing best practice management techniques nationwide. Its company-owned store network also allows Dollar and Thrifty to offer customers one-way rentals in most markets.

As of December 31, 2004, the Company had 113 vehicle rental concessions for company-owned stores at 80 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. A growing number of larger airports are building consolidated airport rental car facilities to eliminate congestion at the airport which also facilitates additional growth for the rental car industry.

Supplemental Equipment and Optional Products – Dollar and Thrifty rent ski racks, baby seats and other supplemental equipment, sell pre-paid gasoline and, subject to availability and applicable local law, make available loss damage waivers and insurance products related to the vehicle rental.

Summary of Corporate Operations Data

Years Ended December 31,

2004 2003 2002

(in thousands)

Rental revenues:

United States - Dollar
$ 870,606 $ 804,700 $ 780,760

United States - Thrifty
339,700 157,006 76,884

   Total U.S. rental revenues
1,210,306 961,706 857,644

Canada - Dollar and Thrifty 65,717 52,415 39,740

   Total rental revenues
1,276,023 1,014,121 897,384

Other 6,363 5,355 4,406

   Total revenues from U.S. and
      Canadian Corporate Operations
$ 1,282,386 $ 1,019,476 $ 901,790

As of December 31,

2004 2003 2002

Rental locations (U.S. and Canada):

Dollar
185 169 138

Thrifty
167 141 86

   Total rental locations
352 310 224

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Franchising

Dollar -- United States and Canada

Dollar sells its U.S. franchises on an exclusive basis for specific geographic areas, generally outside the top 75 U.S. airport markets. 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.

In Canada, Dollar operates corporately at the top eight airport markets and sells franchises in markets outside the top eight airport markets.

The Company offers franchisees, in smaller U.S. and Canadian markets, the opportunity to dual franchise. That is, one franchisee can operate both the Dollar and the Thrifty brand, thus allowing them to drive more business in their market while leveraging fixed costs.

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

System Fees – In addition to an initial franchise fee, each U.S. franchisee is generally required to pay Dollar a system fee equal to 8% of airport rental revenue and 6% for suburban operations. All Canadian franchisees whether operating a single-brand or co-brand location pay a monthly fee generally equal to 8% of rental revenue.

Franchisee Services and Products – Dollar makes insurance coverage available to its franchisees and provides them with training and operational assistance, site selection guidance, vehicle leasing programs, vehicle damage recovery and claims management advice, sales assistance and image and standards guidance. Dollar also provides franchisees 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.

Thrifty -- United States and Canada

Thrifty sells its U.S. franchises on an exclusive basis for specific geographic areas, generally outside the top 75 U.S. airport markets. Historically, Thrifty sold franchises more broadly; however, in 2003, Thrifty implemented a strategy to operate the top 75 U.S. markets as company-owned locations. In Canada, Thrifty sells franchises in markets outside the top eight Canadian airport markets.

The Company offers franchisees in smaller U.S. and Canadian markets the opportunity to dual franchise, operating both the Thrifty and Dollar brand.

Thrifty licenses its franchisees to use the Thrifty brand service marks in the vehicle rental and leasing and parking businesses. Franchisees pay Thrifty 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. Thrifty offers its franchisees a full line of products and services not easily or cost effectively available from other sources. Thrifty works closely with its franchisees in formulating and implementing marketing and operating strategies.

System Fees and Advertising Fees – In addition to the initial franchise fee, Thrifty’s 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 Company management. For 2005, the advertising fee has been reduced from a maximum of 5.0% to 4.5%. For 2004, Thrifty's five largest U.S. franchisees generated less than 2% of the Company’s total revenues in the form of system, fleet leasing, reservation and other fees.

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Franchisee Services and Products – Thrifty provides its U.S. and Canadian franchisees with a full range of products and services, including vehicle leasing, insurance programs, reservations, site selection, computer systems, marketing programs and assistance, supplies, image and standards and training.

Canadian Franchisees – A new program has been introduced in Canada allowing Canadian franchisees the opportunity to also acquire the Dollar brand and operate locations on a co-brand basis. All Canadian franchisees whether operating a single-brand or co-brand location pay a monthly fee generally equal to 8% of rental revenue.

Summary of U.S. and Canada Franchise Operations Data

As of December 31,

2004 2003 2002

Franchisee locations:

Dollar
164 145 129

Thrifty
343 368 450

Total franchisee locations
507 513 579

Franchisees:

Dollar
75 78 56

Thrifty
154 170 187

Total franchisees
229 248 243

International

Dollar and Thrifty offer master franchises outside the United States and Canada, generally on a countrywide basis. Each master franchise is permitted to operate within their franchised territory directly or through subfranchisees. At December 31, 2004, Dollar had franchised locations in 40 countries and Thrifty had franchised locations in 64 countries outside the United States and Canada. These locations are in Latin America, Europe, the Middle East, and the Asia-Pacific regions. In 2003, the Company began offering franchisees the opportunity to license the rights to operate both the Dollar and Thrifty brands in certain markets on a dual franchise or co-brand basis. Revenue generated by the Company from franchised operations outside the United States and Canada totaled $5.1 million in 2004.

Thrifty Car Sales

In December 1998, Thrifty Car Sales was formed to operate a franchise system, “Thrifty Car Sales”. 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. As of December 31, 2004, Thrifty Car Sales had 43 franchise locations in operation.

Reservations

The Internet is an important source of reservations for the Company. For the year ended December 31, 2004, approximately 58% of the Company’s total non-tour reservations came through the Internet, increasing from approximately 53% in 2003. The Company’s Internet Web sites (dollar.com and thrifty.com) provided approximately 31% of total non-tour reservations. During 2004, 27% of non-tour reservations were provided from third party Internet sites with no individual third party site providing in excess of 11% of total non-tour reservations. The remaining non-tour reservations were primarily provided by the reservation call centers and travel agents. The Company has continuously staffed reservation call centers for Dollar and Thrifty at its headquarters in Tulsa, Oklahoma, and at its facility in Tahlequah, Oklahoma. Dollar and Thrifty reservation systems are linked to all major airline reservation systems and through such systems to travel agencies in the United States, Canada and abroad.

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Marketing

Dollar

Dollar positions itself as a value car rental company in the travel industry, providing on airport convenience with low rates on quality vehicles. Customers who rent from Dollar are cost conscious leisure, tour and business travelers who want to save money on car rentals without compromising fundamental car rental services. Dollar implements this strategy through national advertising, strategic marketing partnerships and enhancing distribution channels.

Advertising and Promotion

Dollar has shifted much of its traditional media mix of print and network/cable television to its current emphasis on Internet advertising, where it has made significant investments. In all of its advertising, Dollar promotes dollar.com, its award winning Web site, to encourage travelers to book reservations with Dollar through this low cost channel. 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 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

Dollar has made significant investments in dollar.com and has plans to further enhance the Web site to best meet its customers’ needs. In 2004, Dollar designed and implemented an entirely new, and more user-friendly, dollar.com Web site which now has two-click booking capabilities.

Dollar is also one of the leading car rental companies in direct-connect technology, which supports bypassing the global distribution systems thereby greatly reducing reservation costs.

Major travel chains and consortia operate under preferred supplier agreements with Dollar, and are supported by the Dollar sales department. Under its preferred supplier agreements, Dollar provides these travel agency accounts contracted commission levels and overrides/marketing funds in return for promoting Dollar and giving Dollar a priority in their reservation systems. In general, these agreements are not exclusive to Dollar, and many travel agency accounts have similar arrangements with other vehicle rental companies.

Dollar is also considered an industry leader and has strong relationships with many significant overseas tour operators who specialize in inbound tour packages to the United States. Strategic marketing partnerships have also been developed with most U.S. airlines through active participation in their frequent flyer programs.

Thrifty

Thrifty positions itself 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.

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Advertising and Promotion

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. 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 5.0% 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 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

Thrifty continues to invest in its thrifty.com Web site and recently introduced a new and easier means of booking on thrifty.com. Thrifty continually works to simplify the online reservation process and to ensure the thrifty.com Web site content matches customer needs.

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. Thrifty has also developed strategic partnerships with most U.S. airlines through participation in their frequent flyer programs.

In 2004, Thrifty continued to expand its relationship with Wal-Mart Stores, Inc. (“Wal-Mart”). Thrifty’s relationship with Wal-Mart includes rental counters inside a limited number of Wal-Mart stores, an exclusive marketing and sales agreement that 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.

Customer Service

The Company has programs at its headquarters and in company-owned stores to improve customer service. These programs involve customer satisfaction training and team-based problem solving, especially as it relates to improving customer service. The Company’s customer service centers measure customer satisfaction, track service quality trends, respond to customer inquiries and provide recommendations to senior management and vehicle rental location supervisors. The Company conducts initial and ongoing training for headquarters, company-owned store and franchisee employees, using professional trainers, performance coaches and computer-based training programs.

Information Systems and Other Services

The Company 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 company-owned stores processes rental transactions, facilitates the sale of additional products and services and facilitates the monitoring of its fleet and financial assets. In 1998, the Company developed a revenue management system which is designed to enable the Company to better determine rental demand based on historical reservation patterns and adjust its rental rates accordingly.

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EDS Information Systems, L.L.C. (“EDS”), a leading global information technology service company, manages and monitors the Company’s data center network and its daily information processing. The Company’s counter automation, reservations, revenue management, Internet Web sites and fleet processing systems are housed in a secure underground EDS facility in Oklahoma designed to withstand disasters. Other information systems are supported by Company employees.

U.S. franchisees receiving a certain volume of reservations are required to use an approved automated counter system. In addition to providing an electronic data link with the Company’s worldwide reservations centers, the automated counter system produces rental agreements and provides the Company and its franchisees with customer and vehicle inventory information as well as financial and operating reports.

Insurance, Supplies and National Account Programs. The Company 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.

The Company 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. The Company also negotiates national account programs to allow its franchisees to take advantage of volume discounts for many materials or services used for operations such as tires, glass replacement, long distance telephone service and overnight mail.

Parking Services. Airport parking operations are a natural complement to vehicle rental operations. The Company encourages its franchisees that have near-airport locations to add this ancillary business, and operates some corporate parking operations as well.

Fleet Acquisition and Management

Vehicle Supply

For the 2004 model year, DaimlerChrysler vehicles represented approximately 82% of the total U.S. fleet of DTG Operations. DTG Operations also purchases vehicles from other automotive manufacturers to adjust somewhat the overall composition and cost of the fleet. The Company expects that for the 2005 model year, DaimlerChrysler vehicles will represent approximately 85% of the total U.S. fleet of DTG Operations.

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 as “Program Vehicles.” Vehicles not purchased under these programs and for which rental companies therefore bear residual value risk are referred to herein as “Non-Program Vehicles.” The Company believes that a majority of vehicles owned by other U.S. vehicle rental companies, except for Enterprise, are Program Vehicles.

DaimlerChrysler, the Company’s primary supplier, 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 mileages, model mix requirements, and vehicle condition and other return requirements. The residual value program enables DTG Operations to limit its residual value risk with respect to Program Vehicles because DaimlerChrysler agrees to reimburse DTG Operations 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, DTG Operations must sell the Program Vehicles in closed auctions to DaimlerChrysler dealers. DTG Operations is reimbursed under the program for certain transportation and auction-related costs.

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DTG Operations also purchases Non-Program Vehicles, for which it bears the full residual risk because the vehicles are not covered by any manufacturer’s residual value program. It does so when required by manufacturers in connection with the purchase of Program Vehicles or when 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 DTG Operations, does not set any terms or conditions on the resale of Non-Program Vehicles other than requiring minimum holding periods. For the 2004 model year, approximately 17% of all vehicles acquired by DTG Operations 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 any other purchase or promotion incentives DaimlerChrysler provides. The percentage of vehicles acquired under DaimlerChrysler and other manufacturers’ residual value programs in the future will depend upon several 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 6 of Notes to Consolidated Financial Statements.

Dollar and Thrifty entered into U.S. vehicle supply agreements with DaimlerChrysler, which commenced with the 1997 model year. These vehicle supply agreements have been extended or renewed to cover all model years since inception in 1997. In July 2004, the Vehicle Supply Agreement (the “VSA”) was amended to enable the Company to acquire vehicles through the 2009 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 6 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 for the 2005 model year. In an amendment dated October 2003, the allocation of vehicles was modified to 83% in Program Vehicles and 17% Non-Program Vehicles for the 2004 model year. 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

DTG Operations generally holds vehicles in rental service from seven to nine 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 excess mileage penalties under DaimlerChrysler’s residual value program. DTG Operations must bear the risk on the resale of Program Vehicles that cannot be returned. DTG Operations’ efforts to expand the channels for disposition of Non-Program Vehicles have been successful. DTG Operations disposed of 50% of its Non-Program Vehicles through auctions and 50% directly to used car dealers, wholesalers and its franchisees during the year ended December 31, 2004. Utilizing sales channels other than the auctions avoids transportation costs, interest costs and other fees.

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Maintenance

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

Fleet Leasing Programs

DTG Operations makes fleet leasing programs available to Dollar and Thrifty U.S. franchisees for each new model year. The terms of its 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 the fleet leasing programs and periodically audit franchisees’ leased fleets. For the year ended December 31, 2004, approximately 6% of the Company’s total revenue was derived from vehicle leasing programs. As the Company continues to implement its corporate strategy of acquiring franchise operations and converting them to corporate operations, leasing revenue will continue to decline.

DTG Operations sets lease rates after considering depreciation rates for Program Vehicles, estimated Non-Program Vehicle depreciation rates, 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 seven and nine months. Although DTG Operations leases both Non-Program Vehicles as well as Program Vehicles to Dollar and Thrifty franchisees, these fleet leasing programs eliminate the residual value risk for their franchisees. 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,

2004 2003 2002

DTG

Average number of vehicles leased to
franchisees
16,622 28,162 33,849

Average number of vehicles in
combined fleets of franchisees
42,491 53,410 55,703

Average number of vehicles in combined
fleets of company-owned stores
96,675 75,684 65,331

Total
139,166 129,094 121,034

Competition

There is intense competition in the vehicle rental industry on the basis of price, service levels, vehicle quality, vehicle availability and the convenience and condition of rental locations. Dollar operates mainly in the U.S. airport market, although compared to its competitors it relies more heavily on leisure, tour and small business customers. Dollar’s franchisees have a similar customer profile. In any given location, Dollar may compete with national, regional and local vehicle rental companies, many of which have greater financial resources than the 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.

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

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

Insurance

The Company is subject to third-party bodily injury liability and property damage claims resulting from accidents involving its rental vehicles. In 2004 and 2003, the Company retained the risk of loss in various amounts up to $2.0 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 retained risk. Additionally, in 2003, the Company 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 $2.0 million and maintains insurance at certain amounts in excess of $2.0 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, 2004, the Company’s reserve for public liability and property damage claims was approximately $88.2 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, 2004, these letters of credit and surety bonds totaled approximately $65.4 million and $15.0 million, respectively.

The Company also maintains various surety bonds to secure performance under airport concession agreements and other obligations. As of December 31, 2004, the total amount of these bonds was approximately $29.5 million.

Regulation

Loss Damage Waivers

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 typically 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.

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.

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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’s and Thrifty’s 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; and the generation, storage, transportation and off-site treatment or disposal of waste materials. Dollar and Thrifty own 11 and lease 115 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 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.

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.

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Employees

As of December 31, 2004, the Company employed a total of approximately 8,300 full-time and part-time employees. Approximately 230 of the Company’s employees were subject to collective bargaining agreements as of December 31, 2004. The Company believes its relationship with its employees is good.

Table of Contents

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 Operation - Liquidity and Capital Resources”.

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

The Company owns or leases real property used for company-owned stores and office facilities, and in some cases owns real property that is leased to franchisees or other third parties. As of December 31, 2004, the Company’s company-owned operations were carried on at 352 locations in the United States 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.

Table of Contents

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 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. No discovery is in process nor is there active prosecution by the plaintiff against Dollar.

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.

Table of Contents

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, 2004.

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PART II

Table of Contents

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is listed on the New York Stock Exchange (“NYSE”) under the trading symbol “DTG.” The high and low closing sales prices for the Common Stock for each quarterly period during 2004 and 2003 were as follows:


	First Quarter		Second Quarter		Third Quarter		Fourth Quarter


2004

High	$	27.15	$	27.87	$	27.75	$	30.20

Low	$	23.95	$	24.30	$	23.80	$	22.90


2003

High	$	22.50	$	19.70	$	25.13	$	26.60

Low	$	15.45	$	16.00	$	18.79	$	22.91

The 25,260,838 shares of Common Stock outstanding at February 28, 2005 were held by approximately 6,900 registered and beneficial stockholders of record.

The Company has not paid cash dividends since completion of its initial public offering in December 1997, but may consider paying cash dividends in the future.

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 April 1, 2009, share repurchases and 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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Unregistered Sales of Equity Securities and Use of Proceeds

The following table details share repurchases made by the Company during the fourth quarter of 2004:

Period		Average Price Paid Per Share

October 1, 2004 -
October 31, 2004	-	$ -	-	$ 12,469,000

November 1, 2004 -
November 30, 2004	79,200	$ 25.40	79,200	$ 10,458,000

December 1, 2004 -
December 31, 2004	93,800	$ 28.39	93,800	$ 77,794,000	(a)


Total	173,000		173,000

(a) On December 6, 2004, the share repurchase program was increased from $30 million to $100 million, which has been reflected in shares that may yet be purchased.

In July 2003, the Company announced that its Board of Directors had authorized spending up to $30 million to repurchase the Company’s shares over a two-year period in the open market or in privately negotiated transactions. In December 2004, the Company’s Board of Directors approved expanding the share repurchase program by authorizing an additional $70 million in spending which increased the limit to $100 million for share repurchases and extended the program through December 2006. All share repurchases through December 31, 2004 have been made in open market transactions.

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Table of Contents

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.


			Years Ended December 31,

			2004		2003		2002		2001		2000

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

Revenues:
	Vehicle rentals		$	1,276,023	$	1,014,121	$	897,384	$	821,834	$	844,668
	Vehicle leasing			80,456		144,368		168,792		162,204		198,686
	Fees and services			54,176		54,149		56,237		56,057		61,166
	Other			13,325		15,248		10,781		10,075		9,850

		Total revenues		1,423,980		1,227,886		1,133,194		1,050,170		1,114,370

Costs and expenses:
	Direct vehicle and operating			735,451		524,528		416,954		401,417		346,091
	Vehicle depreciation and lease charges, net			293,684		387,242		367,752		354,394		340,448
	Selling, general and administrative			223,109		189,575		177,562		169,599		187,711
	Interest expense, net			90,868		89,296		93,427		92,365		97,703
	Amortization of goodwill			-		-		-		6,178		5,941

		Total costs and expenses		1,343,112		1,190,641		1,055,695		1,023,953		977,894

Income before income taxes				80,868		37,245		77,499		26,217		136,476

Income tax expense				33,808		17,405		30,668		12,380		58,467

Income before cumulative effect of a change in accounting principle				47,060		19,840		46,831		13,837		78,009

Cumulative effect of a change in accounting principle				3,730		-		-		-		-

Net income			$	50,790	$	19,840	$	46,831	$	13,837	$	78,009

BASIC EARNINGS PER SHARE: (1)
	Income before cumulative effect of a change in accounting principle		$	1.89	$	0.81	$	1.93	$	0.57	$	3.23
	Cumulative effect of a change in accounting principle			0.15		-		-		-		-

	Net income		$	2.04	$	0.81	$	1.93	$	0.57	$	3.23

DILUTED EARNINGS PER SHARE: (1)
	Income before cumulative effect of a change in accounting principle		$	1.79	$	0.78	$	1.88	$	0.57	$	3.18
	Cumulative effect of a change in accounting principle			0.14		-		-		-		-

	Net income		$	1.94	$	0.78	$	1.88	$	0.57	$	3.18




Balance Sheet Data:
	(in thousands)

Cash and cash equivalents			$	204,453	$	192,006	$	143,485	$	37,532	$	38,493
Restricted cash and investments			$	455,215	$	536,547	$	334,849	$	48,090	$	30,760
Revenue-earning vehicles, net			$	2,267,982	$	2,136,719	$	2,006,644	$	1,525,553	$	1,522,388
Total assets			$	3,621,251	$	3,412,499	$	3,115,477	$	2,163,692	$	2,100,374
Total debt			$	2,500,426	$	2,442,162	$	2,224,303	$	1,516,733	$	1,424,021
Stockholders' equity			$	603,469	$	533,457	$	499,481	$	463,321	$	458,139

(1) Since basic and diluted earnings per share are computed independently for each period and category, total per share amounts may
not equal the sum of the respective categories.

Note: Certain reclassifications have been made to the prior years’ financial data to conform to the classifications used in 2004.

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U. S. and Canada


			Years Ended December 31,

			2004		2003		2002		2001		2000

System-wide Data:

Rental locations:
	Company-owned stores			352		310		224		193		182
	Franchisee locations			507		513		579		676		765

		Total rental locations		859		823		803		869		947


Average number of vehicles operated during the period by company-owned stores and franchisees				147,239		136,757		128,968		130,252		134,475

Peak number of vehicles operated during the period by company-owned stores and franchisees				179,304		167,755		158,758		159,993		162,515

Company-owned Stores Data:

Vehicle rental data:
Average number of vehicles operated				102,159		80,302		69,272		68,696		65,702
Number of rental days				31,831,062		24,654,084		21,056,362		20,640,229		20,347,296
Average revenue per day			$	40.09	$	41.13	$	42.62	$	39.82	$	41.52
Monthly average revenue per vehicle			$	1,041	$	1,052	$	1,080	$	997	$	1,071

Vehicle leasing data:
Average number of vehicles leased				17,519		26,917		30,917		30,087		35,520
Average monthly lease revenue per unit			$	383	$	447	$	455	$	449	$	466

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Table of Contents

ITEM 7.

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

Overview

The Company operates two value rental car brands, Dollar and Thrifty. The majority of its customers pick up their vehicles at airport locations. Both brands are value priced and the Company seeks to be the industry’s low cost provider. Leisure customers rent vehicles for longer periods than business customers, on average, providing lower transaction costs. The Company believes its vehicle utilization is consistently higher than that of its competitors.

Both Dollar and Thrifty operate through a network of company-owned stores and franchisees. The majority of the Company’s revenue is generated from renting vehicles to customers through company-owned stores, with lesser amounts generated by fees and leasing revenue from franchisees.

Throughout 2004, the Company’s revenues were positively impacted by stronger rental demand due to increased travel and to franchisee acquisitions. Year over year revenue growth, however, was somewhat tempered by a 2.5% decrease in revenue per day. During 2004, total rental day volume increased 29.1% with same store volume increasing by 10.4%. During the third quarter of 2004, travel into Florida, a key leisure destination accounting for significant revenues, was negatively impacted by four hurricanes. Airline passenger enplanements, an important driver for airport rental car demand, were up 5.7% in 2004 versus 2003.

During 2004, the Company achieved lower vehicle costs due to increased manufacturer purchase incentives and an improved used car market.

Beginning in 2003, the Company implemented a single operating company structure organized around functions rather than organized solely around the brand. This structure focuses on operating both the Dollar and Thrifty brands with a single management team, sharing systems, vehicles, back-office employees and service facilities, where possible. The Company believes this is a more efficient operating model. The Company has combined its information technology systems to gain efficiencies and facilitate additional growth.

The Company has made significant progress in transitioning the Thrifty business model from a franchise model to a corporate operating model, similar to Dollar’s business model. The Company’s long term strategy is to operate both brands as corporate stores in the top 75 U.S. airport markets, the top eight Canadian airport markets and in other key leisure destinations, and to operate through franchisees in the smaller markets and in markets outside the U.S. and Canada. During 2004, the Company acquired franchise operations in 16 U.S. and Canadian markets and opened two U.S. greenfield locations. During 2004, rental day volume increased by over 18% in company-owned stores as a result of franchisee acquisitions and the opening of greenfield locations. The Company expects to fund all remaining franchisee acquisitions with cash from operations.

The Company’s profitability is primarily a function of the volume and pricing of rental transactions, utilization of the vehicles and the volume and pricing 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.

The Company expects its ongoing cash flow to exceed cash required to operate the business. As a result, in December 2004, the Company increased its share repurchase program from the originally announced $30 million level to $100 million and expects to complete the repurchase of the remaining authorized shares by December 2006. In 2004, the Company repurchased 634,300 shares for $16.4 million. The Company has repurchased 870,300 shares at a cost of $22.2 million since announcing the share repurchase program in July 2003. Due to the increase in the share repurchase program in December 2004, the Company plans to increase the pace of repurchasing its shares in 2005.

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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,

			2004			2003			2002

Revenues:
	Vehicle rentals			89.6	%		82.6	%		79.2	%
	Vehicle leasing			5.7			11.8			14.9
	Fees and services			3.8			4.4			5.0
	Other			0.9			1.2			0.9

		Total revenues		100.0			100.0			100.0


Costs and expenses:
	Direct vehicle and operating			51.6			42.7			36.8
	Vehicle depreciation and lease charges, net			20.6			31.6			32.5
	Selling, general and administrative			15.7			15.4			15.7
	Interest expense, net			6.4			7.3			8.2

		Total costs and expenses		94.3			97.0			93.2

Income before income taxes				5.7			3.0			6.8

Income tax expense				2.4			1.4			2.7

Income before cumulative effect of a change in accounting principle				3.3			1.6			4.1

Cumulative effect of a change in accounting principle				0.3			-			-

Net income				3.6	%		1.6	%		4.1	%

The Company’s revenues consist of:

•	Vehicle rental revenue generated from renting vehicles to customers through company-owned stores.

•	Vehicle leasing revenue generated from leasing vehicles to franchisees.

•	Fees and services revenue generated from continuing franchise fees and providing services to franchisees.

•	Other revenue generated from miscellaneous sources.

The Company’s expenses consist of:

•	Direct vehicle and operating expense related to the rental of revenue-earning vehicles to customers and the leasing of vehicles to franchisees.
•	Vehicle depreciation and lease charges net of gains and losses on vehicle disposal and payments received on manufacturer promotional and incentive programs.
•	Selling, general and administrative expense, which primarily includes headquarters personnel expenses, advertising and marketing expenses and administrative expenses.
•	Interest expense, net which includes interest expense on vehicle related debt, net of interest earned on restricted cash.

Year Ended December 31, 2004 Compared with Year Ended December 31, 2003

Operating Results

The Company had income before income taxes and cumulative effect of a change in accounting principle of $80.9 million for 2004 as compared to $37.2 million in 2003. The cumulative effect of the change in accounting principle was $3.7 million. This change in accounting principle relates to the adoption of FASB Interpretation No. 46(R) by the Company effective March 31, 2004 (see New Accounting Standards). Income before income taxes in 2003 was reduced by $22.1 million due to the implementation of Emerging Issues Task Force No. 02-16 (“EITF 02-16”). See Note 3 of Notes to Consolidated Financial Statements for further discussion.

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Revenues


					$ Increase/			% Increase/
	2004		2003		(decrease)			(decrease)

	(in millions)

Vehicle rentals	$	1,276.0	$	1,014.1	$	261.9			25.8	%
Vehicle leasing		80.5		144.4		(63.9	)		(44.3	%)
Fees and services		54.2		54.2		-			0.0	%
Other		13.3		15.2		(1.9	)		(12.6	%)

Total revenues	$	1,424.0	$	1,227.9	$	196.1			16.0	%


Vehicle rental metrics:
Number of rental days		31,831,062		24,654,084		7,176,978			29.1	%
Average revenue per day	$	40.09	$	41.13	$	(1.04	)		(2.5	%)

Vehicle leasing metrics:
Average number of vehicles leased		17,519		26,917		(9,398	)		(34.9	%)
Average monthly lease revenue per unit	$	383	$	447	$	(64	)		(14.3	%)

Vehicle rental revenue increased 25.8% due to a 29.1% increase in rental days totaling $295.2 million, partially offset by a 2.5% decrease in revenue per day totaling $33.3 million. Vehicle rental revenue grew by 17.2% due to 2003 franchisee acquisitions that had not yet annualized, 2004 franchisee acquisitions and greenfield locations and by 8.6% from same store growth.

Vehicle leasing revenue decreased 44.3%, due to a 34.9% decrease in the average lease fleet totaling $50.4 million and to a 14.3% decrease in the average lease rate totaling $13.5 million. The decline in volume was due to fewer vehicles leased to franchisees, which is primarily attributable to the shift of several locations from franchised operations to corporate operations in line with the Company’s acquisition strategy.

Fees and services revenue was flat year over year; however, such revenue increased in 2004 due to revenues associated with Thrifty Rent-A-Car System, Inc. National Advertising Committee (“Thrifty National Ad”), which were $8.1 million and beginning April 1, 2004, were included in the Company’s consolidated results due to adopting FASB Interpretation No. 46, “Consolidation of Variable Interest Entities”, as amended in December 2003 (“FIN 46(R)”), an interpretation of Accounting Research Bulletin No. 51. This increase in fees and services revenue was offset by lower revenues from franchisees due to the shift of several locations from franchised operations to corporate operations.

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Expenses


					$ Increase/			% Increase/
	2004		2003		(decrease)			(decrease)

	(in millions)

Direct vehicle and operating	$	735.4	$	524.5	$	210.9			40.2	%
Vehicle depreciation and lease charges, net		293.7		387.2		(93.5	)		(24.2	%)
Selling, general and administrative		223.1		189.6		33.5			17.7	%
Interest expense, net of interest income		90.9		89.3		1.6			1.8	%

Total expenses	$	1,343.1	$	1,190.6	$	152.5			12.8	%

Direct vehicle and operating expenses increased $210.9 million, of which $153.9 million was due to higher fleet and transaction levels resulting primarily from the operation of additional corporate stores and increased rental demand. Most of this increase is attributable to increases in personnel related expenses of $55.2 million, vehicle related costs of $36.9 million, facility and airport concession expenses of $31.8 million and commissions of $12.0 million. Additionally, the Company increased vehicle insurance reserves by $6.1 million and workers’ compensation reserves by $2.6 million to reflect changes in actuarial estimates. In the fourth quarter of 2003, the Company adopted EITF 02-16 (see New Accounting Standards), which requires promotional incentives to be classified as a reduction of vehicle capitalized costs and consequently a reduction to vehicle depreciation and lease charges, net, on a prospective basis rather than direct vehicle and operating expenses. Consequently, direct vehicle and operating expenses were reduced by $48.3 million for 2003, relating to promotional payments, which are classified as a reduction of vehicle depreciation expense in 2004. Direct vehicle and operating expenses were 51.6% of revenue in 2004, compared to 42.7% of revenue in 2003.

Net vehicle depreciation and lease charges decreased $93.5 million, of which $69.5 million of the decrease was due to classifying promotional incentives as a reduction in vehicle depreciation and lease charges, net, under the guidance of EITF 02-16 effective in the fourth quarter of 2003. These promotional incentives were previously recorded as a reduction to direct vehicle and operating expenses through September 30, 2003. Additionally, net vehicle gains on the disposal of Non-Program Vehicles were $23 million in 2004 compared to a loss of $1.9 million in 2003, due to lower acquisition costs and to an improved used car market. Lease charges, for vehicles leased from third parties, increased $8.1 million due to an increase in the number of vehicles leased. Vehicle depreciation expenses also decreased $7.2 million due to a 9.9% decrease in the average depreciation rate resulting from favorable manufacturer fleet programs, partially offset by an 8.9% increase in depreciable fleet. Net vehicle depreciation expense and lease charges were 20.6% of revenue in 2004, compared to 31.6% of revenue in 2003.

Selling, general and administrative expenses for 2004 increased $33.5 million. This increase was due primarily to a $13.7 million increase in sales and marketing costs and an $11.6 million increase in personnel related costs including a $4.3 million increase in expenses related to the Company’s performance based compensation plans. The remaining increase is principally due to costs associated with Thrifty National Ad which were $9.2 million and are included in the Company’s consolidated results as of April 1, 2004 due to the adoption of FIN 46(R). These costs are primarily offset by a corresponding increase in fees and services revenue, thus having minimal impact on net income. Selling, general and administrative expenses were 15.7% of revenue in 2004, compared to 15.4% of revenue in 2003.

Net interest expense increased $1.6 million in 2004 primarily due to an increase in average vehicle debt, partially offset by lower interest rates. Net interest expense was 6.4% of revenue in 2004, compared to 7.3% of revenue in 2003.

The income tax provision for 2004 was $33.8 million. The effective income tax rate for 2004 was 41.8% compared to 46.7% in 2003. This decrease in the effective tax rate was due primarily to higher U.S. pretax earnings in relation to Canadian pretax losses. The Company reports taxable income for the U.S. and Canada in separate tax jurisdictions and establishes provisions separately for each jurisdiction. On a separate, domestic basis, the U.S. effective tax rate approximates the statutory tax rate including the effect of state income taxes. However, no income tax benefit was recorded for Canadian losses in 2004 or 2003, thus, increasing the consolidated effective tax rate compared to the U.S. effective tax rate.

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Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

Operating Results

The Company had income before income taxes of $37.2 million for 2003 as compared to $77.5 million in 2002. Income before income taxes for 2003 was reduced by $22.1 million due to the implementation of EITF 02-16. See Note 3 of Notes to Consolidated Financial Statements for further discussion.

Revenues


					$ Increase/			% Increase/
	2003		2002		(decrease)			(decrease)

	(in millions)

Vehicle rentals	$	1,014.1	$	897.4	$	116.7			13.0	%
Vehicle leasing		144.4		168.8		(24.4	)		(14.5	%)
Fees and services		54.2		56.2		(2.0	)		(3.7	%)
Other		15.2		10.8		4.4			41.4	%

Total revenues	$	1,227.9	$	1,133.2	$	94.7			8.4	%


Vehicle rental metrics:
Number of rental days		24,654,084		21,056,362		3,597,722			17.1	%
Average revenue per day	$	41.13	$	42.62	$	(1.49	)		(3.5	%)

Vehicle leasing metrics:
Average number of vehicles leased		26,917		30,917		(4,000	)		(12.9	%)
Average monthly lease revenue per unit	$	447	$	455	$	(8	)		(1.8	%)

Vehicle rental revenue increased 13.0% due to a 17.1% increase in rental days totaling $153.3 million, partially offset by a 3.5% decrease in revenue per day totaling $36.6 million. Vehicle rental revenue grew by 10.4% due to 2002 franchisee acquisitions that had not yet annualized, 2003 franchisee acquisitions and greenfield locations and by 2.6% from same store growth.

Vehicle leasing revenue decreased 14.5% due primarily to shifting several locations from franchised operations to corporate operations in line with the Company’s acquisition strategy.

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Expenses


					$ Increase/			% Increase/
	2003		2002		(decrease)			(decrease)

	(in millions)

Direct vehicle and operating	$	524.5	$	417.0	$	107.5			25.8	%
Vehicle depreciation and lease charges, net		387.2		367.7		19.5			5.3	%
Selling, general and administrative		189.6		177.6		12.0			6.8	%
Interest expense, net of interest income		89.3		93.4		(4.1	)		(4.4	%)

Total expenses	$	1,190.6	$	1,055.7	$	134.9			12.8	%

Direct vehicle and operating expenses increased $107.5 million primarily due to higher transaction levels, resulting primarily from the operation of additional corporate stores. Personnel related expenses were increased by $21.4 million, facilities expenses by $17.7 million, commissions by $6.6 million, and vehicle related costs by $32.1 million, offset by $3.5 million reduced bad debt expense due to reduced franchisee revenue and the financial stability of the remaining franchisees. In addition, direct vehicle and operating expenses increased $28.4 million, resulting from reduced recognition of promotional incentives, of which $26.6 million was due to the Company’s implementing EITF 02-16 during the fourth quarter of 2003. Direct vehicle and operating expenses were 42.7% of revenue in 2003, compared to 36.8% of revenue in 2002.

Net vehicle depreciation expense increased $19.5 million, of which $11.2 million is due to a 6.9% increase in depreciable fleet partially offset by a 3.6% decrease in the average depreciation rate, excluding the impact of EITF 02-16. The disposition of Non-Program Vehicles resulted in a net loss of $1.9 million in 2003 compared to a gain of $10.2 million in 2002 reflecting the decline in used car values in 2003. Lease charges for vehicles leased from third parties increased $0.7 million. Vehicle depreciation expense was lower by $4.5 million due to implementing EITF 02-16 during the fourth quarter of 2003. Net vehicle depreciation and lease charges were 31.6% of revenue in 2003, compared to 32.5% of revenue in 2002.

Selling, general and administrative expenses increased in 2003 primarily due to an increase in sales, marketing and advertising costs of $7.0 million and an increase of $4.2 million in expenses resulting from the mark to market valuation of the Company’s deferred compensation and retirement plans. The expense is attributable to mark to market valuation of the corresponding investments and is offset by corresponding amounts in other revenue, thus, having no impact on net income. Selling, general and administrative expenses were 15.4% of revenue for 2003, compared to 15.7% of revenue for 2002.

Net interest expense decreased $4.1 million in 2003 primarily due to lower interest rates, partially offset by an increase in average vehicle debt. Net interest expense was 7.3% of revenue for 2003, compared to 8.2% of revenue for 2002.

The tax provision for 2003 was $17.4 million. The effective tax rate of 46.7% for 2003 was higher than the 39.6% rate in 2002. This increase in the effective tax rate was due primarily to lower U.S. pretax earnings in relationship to Canadian pretax losses. The Company reports taxable income for the U.S. and Canada in separate tax jurisdictions and establishes provisions separately for each jurisdiction. On a separate, domestic basis, the U.S. effective tax rate approximates the statutory tax rate including the effect of state income taxes. However, on a consolidated basis, no income tax benefit is recorded for Canadian losses in 2003, thus, increasing the consolidated effective tax rate.

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, share repurchases 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.

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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 $415.1 million for 2004 is primarily the result of net income, adjusted for depreciation, favorable tax programs (discussed below), which provided the Company deferral of tax payments on 2004 earnings to future years and the increase in the reserve for public liability and property damage due to retaining risk of loss for insurance claims. 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 are provided by a combination of cash, vehicles and letters of credit. These letters of credit are provided under the Company’s Revolving Credit Facility.

The Company believes that its cash generated from operations, availability under its Revolving Credit Facility, insurance bonding programs and secured vehicle financing programs are adequate to meet its liquidity requirements for the foreseeable future. A portion of the secured vehicle financing is supported by 364-day bank facilities, which are renewable annually. The renewals of these 364-day bank facilities are expected to close on March 30, 2005. A significant portion of the secured vehicle financing consists of asset backed notes, which have varying maturities through 2008. 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 additional notes during 2005, partially to replace maturing notes of $604 million. The Company has experienced some increases during the last few years in the level of credit enhancement or additional collateral required for new asset backed notes 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.

Cash used in investing activities was $437.6 million. The principal use of cash in investing activities was the purchase of revenue-earning vehicles, which totaled $3.5 billion, which was partially offset by $3.1 billion in proceeds from the sale of used revenue-earning vehicles. The Company’s need for cash to finance vehicles is 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 first and fourth quarters when rental demand is at a seasonal low. Restricted cash at December 31, 2004 decreased $81.3 million from the previous year due to an increase in the fleet compared to the prior year. 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 $31.1 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 $40 million in 2005. In addition, the Company used cash for franchisee acquisitions of $77.8 million in 2004 and will continue to pursue the acquisition of certain franchisee operations, subject to Revolving Credit Facility restrictions. Future franchisee acquisition expenditures are expected to be financed with available cash and cash to be provided from future operations.

Cash provided by financing activities was $34.9 million primarily due to the issuance of $500 million in asset backed notes in May 2004 and an increase of $75 million under the asset backed Variable Funding Note Purchase Facility (the “Conduit Facility”), partially reduced by a net decrease in the issuance of commercial paper totaling approximately $199 million, a net decrease in amounts drawn on vehicle manufacturer and bank lines of credit totaling $70 million and the maturity of asset backed notes totaling $269 million.

In March of 2002, Congress passed the Job Creation and Worker Assistance Act of 2002, which includes a provision allowing bonus depreciation on certain depreciable assets, including vehicles, acquired after September 10, 2001 and before September 11, 2004. In May 2003, Congress passed the Jobs and Growth Tax Relief Reconciliation Act of 2003, which increased the rate of bonus depreciation for assets acquired after May 5, 2003 and extended the benefit of this increased rate to assets acquired through December 31, 2004. The Acts significantly increase the amount of tax basis depreciation that can be claimed on the Company’s federal and some state tax returns. The Company utilizes 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.

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The Acts have eliminated the payment of most cash income taxes and have allowed the Company to carry back benefits to obtain refunds of taxes paid in prior years. The Acts improve 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 pay reduced cash income taxes beyond 2004, when the bonus depreciation provision included in the Acts expired. The Like-Kind Exchange Program has significantly increased the amount of cash and investments restricted for the purchase of replacement vehicles, especially during seasonally reduced fleet periods. At December 31, 2004, restricted cash and investments totaled $455.2 million and 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 majority of the restricted cash and investments balance is normally utilized in the second and third quarters for seasonal purchases.

Share Repurchase Program

In July 2003, the Company announced that its Board of Directors had authorized spending up to $30 million to repurchase the Company’s shares of common stock over a two-year period in the open market or in privately negotiated transactions. In December 2004, the Company expanded the share repurchase program by authorizing spending up to $100 million for share repurchases through December 2006. In 2004, the Company repurchased 634,300 shares of common stock at an average price of $25.85 per share totaling $16.4 million. Since inception of the share repurchase program, the Company has repurchased 870,300 shares of common stock at an average price of $25.52 per share totaling approximately $22.2 million, all of which were made in open market transactions.

To augment its share repurchase program, the Company has established a trading plan in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (“Rule 10b5-1”). The Company’s Rule 10b5-1 trading plan allows repurchases of the Company’s common stock during black-out periods by establishing a prearranged written plan to buy a specified number of shares of the Company’s common stock over a set period of time.

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Contractual Obligations and Commitments

The Company has various contractual 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, the renewal of its 364-day bank facilities 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, 2004:


			Payments due or commitment expiration by period (in thousands)
			2005		2006-2007		2008-2009		Beyond 2009		Total

Contractual cash obligations:
	Long-term debt (1)		$	603,882	$	608,333	$	500,000	$	-	$	1,712,215
	Commercial paper outstanding (1)			156,040		-		-		-		156,040
	Other short-term borrowings (1)			632,639		-		-		-		632,639

		Subtotal - Vehicle debt and obligations		1,392,561		608,333		500,000		-		2,500,894

	Operating lease commitments			30,374		49,146		30,380		57,711		167,611
	Airport concession fee commitments			44,719		75,881		37,465		68,082		226,147
	Vehicle purchase commitments			1,566,329		-		-		-		1,566,329
	Other Commitments			12,745		15,791		10,445		5,000		43,981

		Total contractual cash obligations	$	3,046,728	$	749,151	$	578,290	$	130,793	$	4,504,962

Other commercial commitments:
		Letters of credit	$	128,834	$	38,750	$	219	$	-	$	167,803

(1) Further discussion of long-term debt, commercial paper outstanding and short-term borrowings is below and in Note 10 of Notes to Consolidated Financial Statements. Amounts exclude related discounts, where applicable.

Asset Backed Notes

The asset backed note program is comprised of $1.71 billion in asset backed notes with maturities ranging from 2005 to 2008. Borrowings under the asset backed notes are secured by eligible vehicle collateral and bear interest at fixed rates ranging from 3.64% to 7.10% on $1.53 billion, including certain floating rate notes swapped to fixed rates, and at floating rates on $186.1 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 $429 million at December 31, 2004.

On May 5, 2004, Rental Car Finance Corp. issued $500 million of asset backed notes (the “2004 Series Notes”) to replace maturing asset backed notes and provide for growth in the Company’s fleet. The 2004 Series Notes are floating rate notes that have a term of four years. In conjunction with the issuance of the 2004 Series Notes, the Company also entered into interest rate swap agreements to convert this floating rate debt to fixed rate debt.

Conduit Facility

On April 1, 2004, the Company renewed its Variable Funding Note Purchase Facility (the “Conduit Facility”) for another 364-day period and increased the capacity from $275 million to $350 million. Effective March 30, 2005, the Conduit Facility is expected to be renewed for a 364-day period. Proceeds are used for financing of vehicle purchases and for a periodic refinancing of asset backed notes. The Conduit Facility generally bears interest at market-based commercial paper rates and is renewed annually.

Commercial Paper Program and Liquidity Facility

At December 31, 2004, the Company’s commercial paper program (the “Commercial Paper Program”) had a maximum capacity of $594 million supported by a $520 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, 2004, the Company had $155.6 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 first quarter of 2004 when it reached $360 million.

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The Commercial Paper Program is expected to be renewed for a 364-day period effective March 30, 2005, backed by a renewal of the Liquidity Facility.

Vehicle Debt and Obligations

The Company finances its Canadian vehicle fleet through a fleet securitization program which began in February 1999. This program was amended on April 30, 2004, increasing the vehicle financing up to CND $235 million funded through a bank commercial paper conduit and extending the maturity date to December 31, 2005. At December 31, 2004, DTG Canada had approximately CND$129.6 million (US$108.0 million) funded under this program.

Vehicle manufacturer and bank lines of credit provided $407.8 million in capacity at December 31, 2004, an increase of approximately $6.5 million from December 31, 2003. Borrowings of $174.6 million were outstanding under these lines at December 31, 2004. These lines of credit are secured by the vehicles financed under these facilities and are primarily renewable annually. The Company expects to continue using these sources of vehicle financing in 2005 and future years.

Revolving Credit Facility

The Company has a $300 million senior secured, revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility is used to provide working capital borrowings and letters of credit. 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 maximum leverage ratio, a minimum fixed charge coverage ratio and a limitation on cash dividends and share repurchases. In early 2004, the Company received bank consent which reduced restrictions relating to franchise acquisitions in the Revolving Credit Facility. On April 1, 2004, the Company extended the Revolving Credit Facility to April 1, 2009 and increased the capacity from $215 million to $300 million. In December 2004, the Company completed an amendment of the Revolving Credit Facility, modifying certain limitations on the payment of cash dividends and repurchases of the Company’s shares of common stock. The Revolving Credit Facility permits letter of credit usage of up to $300 million and working capital borrowings of up to $100 million. At December 31, 2004, the Company had letters of credit outstanding under the Revolving Credit Facility of approximately $159.2 million and no working capital borrowings. The Company uses letters of credit to support insurance programs, interest rate swaps and asset backed vehicle financing programs. As of December 31, 2004, the Company is in compliance with all covenants.

Debt Servicing Requirements

The Company will continue to have substantial debt and debt service requirements under its financing arrangements. As of December 31, 2004, the Company’s total consolidated debt and other obligations were approximately $2.5 billion, 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’s financial statements. The Company has scheduled annual principal payments of approximately $1.4 billion in 2005, $296 million in 2006, $312 million in 2007 and $500 million in 2008.

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 and repurchase its shares. 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 with 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, 2004, various insurance companies had issued $44.5 million in bonds and various banks had issued $71.1 million in letters of credit 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 2005, approximately 40% of its average debt will bear interest at floating rates. The amount of the Company’s financing costs affects the amount the Company must charge its customers to be profitable. See Note 10 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.

Critical Accounting Policies and Estimates

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 does self-insure or retain a portion of the exposure for losses related to public liability and property damage insurance. The obligation for public liability and property damage represents an estimate of both reported accident claims not yet paid and claims incurred but not yet reported, up to the Company’s risk retention level. The Company records public liability and property damage expense on a monthly basis based on rental volume in relation to historical accident claim experience and trends, projections of ultimate losses, expenses, premiums and administrative costs. Management monitors the adequacy of the liability and monthly accrual rates based on the services of an independent third party actuary and internal analysis of the development of the claim reserves, the accident claim history and rental volume. Since the ultimate disposition of the claims is uncertain, the likelihood of materially different results is possible, but the potential volatility of these estimates is reduced due to the frequency of internal reviews and reviews by the third party actuary and significant historical data available for similar claims.

Vehicle depreciation expense – The Company generally purchases 70% to 85% 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 15% to 30% 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 by reviewing the projected market value for the vehicles at expected date of disposition and the overall outlook for the used car market. 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 seven to nine months and the Company has generally experienced gains on disposal. Many factors affect the market value of used cars including increasing use of incentives and zero-percent financing by automobile manufacturers for new vehicles, limited or excess supply of used vehicles and overall economic conditions. The likelihood that the Company’s estimates could materially change is possible due to the volatility of the used car market. A one percent change in the expected residual value of Non-Program Vehicles sold during 2004 would have impacted vehicle depreciation expense, net by $3.5 million.

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Bad debt expense – The Company maintains an allowance for doubtful accounts and charges bad debt expense for estimated losses resulting from the inability of franchisees to make required payments. Management reviews monthly the individual accounts of franchisees with past due balances to determine the likelihood of collectibility and the amount of bad debt expense, if any, required for a particular franchisee. Factors considered include the aging and magnitude of past due amounts, the franchisees’ operating and credit history, market conditions, operating plan and available collateral. The Company records a reserve for the potential amounts owed by its franchisees that will not be collected when the amount of the loss is probable and can be reasonably estimated. Accounts are typically charged off at the point the Company reaches settlement or no longer pursues collection. The likelihood that results may materially differ from amounts estimated is possible due to circumstances outside the franchisees’ or the Company’s control with respect to economic, industry or other external conditions. In addition, as the Company continues to acquire franchisees in larger markets, the corresponding receivables and risk of collectibility from franchisees will continue to decline.

New Accounting Standards

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”), which is a revision of Statement No. 123, “Accounting for Stock-Based Compensation”. This revised statement establishes accounting standards for all transactions in which an entity exchanges its equity instruments for goods and services focusing primarily on accounting for transactions with employees and carrying forward prior guidance for share-based payments for transactions with non-employees.

SFAS No. 123(R) eliminates the intrinsic value measurement objective in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", ("APB Opinion 25") and generally requires measuring the cost of the employee services received in exchange for an award of equity instruments based on the fair value of the award on the date of the grant. The standard requires grant date fair value to be estimated using either an option-pricing model which is consistent with the terms of the award or a market observed price, if such a price exists. Such costs must be recognized over the period during which an employee is required to provide service in exchange for the award. The standard also requires estimating the number of instruments that will ultimately be issued, rather than accounting for forfeitures as they occur.

The effective date of SFAS No. 123(R) is the first reporting period beginning after June 15, 2005 and the Company expects to adopt SFAS No. 123(R) effective July 1, 2005. SFAS No. 123(R) permits companies to adopt its requirements using either a “modified prospective” method, or a “modified retrospective” method. Under the “modified prospective” method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS No. 123(R) for all share-based payments granted after that date, and based on the requirements of SFAS No.123 for all unvested awards granted prior to the effective date of SFAS No. 123(R). Under the “modified retrospective” method, the requirements are the same as under the “modified prospective” method, but also permits entities to restate financial statements of previous periods based on pro forma disclosures made in accordance with SFAS No. 123. The Company plans to adopt the modified prospective method under SFAS No. 123(R) as required on July 1, 2005 and does not anticipate the adoption to have a material effect on the consolidated financial statements of the Company.

The Company had previously adopted the provisions of SFAS No. 123 beginning January 1, 2003 changing from the intrinsic value-based method to the fair value-based method of accounting for stock-based compensation, electing the prospective treatment option, which required recognition as compensation expense for all future employee awards granted, modified or settled as allowed under SFAS No. 148, “Accounting for Stock Based Compensation – Transition and Disclosure,” an amendment of SFAS No. 123.

In October 2004, the Emerging Issues Task Force (“EITF”) issued EITF No. 04-1, “Accounting for Preexisting Relationships between the Parties to a Business Combination” (“EITF 04-1”). EITF 04-1 affirms that a business combination between two parties that have a preexisting relationship should be accounted for as a multiple element transaction. This includes determining how the cost of the combination should be allocated after considering the assets and liabilities that existed between the parties prior to the combination. EITF 04-1 is effective for business combinations consummated in reporting periods beginning after October 13, 2004. The Company adopted the provisions of EITF 04-1 beginning January 1, 2005. Adoption of EITF 04-1 will impact the way in which the Company accounts for certain business combination transactions through establishing identifiable intangibles, other than goodwill, for reacquired rights to trademarks through the Company’s acquisitions of franchisee operations.

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In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” as amended in December 2003 (“FIN 46(R)”) an interpretation of Accounting Research Bulletin No. 51. FIN 46(R) requires existing unconsolidated variable interest entities (“VIE’s”) to be consolidated by their primary beneficiaries if that company is subject to a majority of the risk of loss, if any, from the VIE’s activities, or entitled to receive a majority of the entity’s residual returns, or both. The Company believes that its involvement with Thrifty National Ad qualifies Thrifty National Ad as a VIE with the Company representing the primary beneficiary. Consequently, Thrifty National Ad has been consolidated in the Company’s financial statements beginning with the quarter ended March 31, 2004. The fair value of the net assets of Thrifty National Ad of approximately $3.7 million at March 31, 2004, was recorded as a cumulative effect of a change in accounting principle in the Company’s consolidated statements of income. Beginning April 1, 2004, the Company began consolidating the operating results of Thrifty National Ad with its operating results. Thrifty National Ad is established for the limited purpose of collecting and disbursing funds for advertising and promotion programs for the benefit of the Thrifty Car Rental corporate and franchisee network. Thrifty National Ad files its tax returns under the provisions applicable to a trust. Accordingly, there is no tax effect on the cumulative effect of the change in accounting principle or on subsequent profits or losses. The Company’s estimated maximum exposure to loss as a result of its continuing involvement with Thrifty National Ad is expected to be minimal as expenditures are managed by Thrifty National Ad based on receipts. The Company also evaluated its franchisee network as potential VIE’s subject to possible consolidation. The Company determined that its franchisees met the FIN 46(R) definition of a business; however, the Company did not provide more than half of each franchisee’s equity or other financial support, among other qualifying conditions. Therefore, the Company believes that its franchisees do not qualify as VIE’s under FIN 46(R) and are not required to be consolidated into the Company’s financial statements.

In October, 2003, the Company implemented the provisions of EITF No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor” (“EITF 02-16”). Under EITF 02-16, effective with the amendment to the vehicle supply agreement with DaimlerChrysler, the Company began accounting for the promotional payments received as a reduction of the cost of the vehicles when acquired and recognized over the lives of the vehicles as a reduction of depreciation expense. Under the new method, the promotional payments are recognized over the 19 to 20 month period during which the related vehicles are cycled through the fleet. Previously, these payments were accrued and amortized on a straight line basis over the 12 month vehicle model year as a reduction in direct vehicle and operating expenses. As required under EITF 02-16, the effect of this change has been accounted for prospectively as a change in estimate.

Risk Factors

Expanding upon the factors discussed in the Forward-Looking Statements section provided at the beginning of this Annual Report on Form 10-K, the following are important factors that could cause actual results or events to differ materially from those contained in any forward-looking statements made by or on behalf of the Company. In addition, the risks and uncertainties described below are not all inclusive. Unforeseen risks could arise and issues the Company now views as minor could become more significant. If the Company is unable to adequately respond to any such risks, the financial condition and results of operations could be materially adversely affected.

Economic Conditions

The Company’s results are affected by general economic conditions in the United States and Canada. A decline in general economic activity has historically led to a decline in both business and leisure travel and to lower demand for rental vehicles resulting in lower industry revenues. The Company maintains the flexibility to reduce its rental fleet size in the event of an unexpected reduction in rental demand, which partially offsets the related reduction in revenues.

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Highly Competitive Nature of the Vehicle Rental Industry

There is intense competition in the vehicle rental industry, particularly with respect to price and service. The Internet has increased brand exposure and transparency of rental prices to consumers, thereby increasing price competition. The vehicle rental industry primarily consists of eight major brands, all of which compete vigorously for rental customers. A significant increase in industry capacity or a reduction in overall demand could adversely affect the Company’s ability to maintain or increase rental rates.

Dependence on Air Travel

The Company’s revenues are principally derived from airport locations and airport arriving customers. The Company estimates that approximately 90% of its rental revenues are generated at airport locations. Any event that significantly disrupts air travel could have a material adverse affect on the Company’s results.

Concentration in Leisure Destinations

The Company has a significant presence in key leisure destinations and derives a significant portion of its revenue from these markets. Rental revenue from Florida, Hawaii, California and Nevada represented over 60% of the Company’s total rental revenue in 2004. Reductions in leisure travel to these destinations resulting from natural disasters, terrorist acts, general economic conditions or other factors would have a material impact on the Company’s results.

Market Risk in Vehicle Disposition

The Company generally purchases 15% to 30% of its vehicles as Non-Program Vehicles. The Company’s costs for these vehicles are dependent on the level of used car prices at the time of disposition. A significant unexpected decline in used car prices would have a significant adverse impact on the Company’s results.

Vehicle Supply

The Company’s VSA with DaimlerChrysler extends through July, 2009 and the Company generally purchases 80% to 90% of its vehicles from DaimlerChrysler. Under the VSA, the Company is required to purchase 75% of its vehicles from DaimlerChrysler up to certain targeted volumes and DaimlerChrysler has agreed to provide certain minimum volumes of vehicles to the Company. The VSA also requires that 80% of the vehicles at the targeted volumes be Program Vehicles.

The Company’s annual vehicle requirements usually exceed the amounts that DaimlerChrysler has agreed to provide under the VSA. Historically, DaimlerChrysler has agreed to sell additional vehicles to the Company in excess of the amounts required under the VSA. The Company has also acquired vehicles from other manufacturers to meet its vehicle requirements. The Company depends on DaimlerChrysler to continue to provide vehicles in excess of the amounts included in the VSA, or alternatively the Company has the ability to purchase vehicles from other manufacturers to fulfill its ongoing vehicle requirements. The Company annually negotiates these purchase agreements that are outside the VSA. An inability to acquire a sufficient supply of vehicles could adversely affect the Company's results.

Third Party Internet Sites

The Internet has had a significant impact on the way travel companies obtain reservations. For 2004, the Company obtained 58% of its non-tour reservations from the Internet, with 31% provided by the Company’s own Internet Web sites, dollar.com and thrifty.com. The remaining 27% of non-tour reservations were provided by third party Internet sites. No single third party Internet site provides more than 11% of the Company’s non-tour reservations.

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Future changes in the way travel is sold over the Internet or changes in the Company’s relationship with third party Internet sites could result in reduced reservation volume from one or more of these sites and less revenue for the Company.

Outlook for 2005

The Company expects continued growth in travel in 2005 as the economy continues to improve. The airline industry is expected to add capacity in 2005 to accommodate an expected increase in travel demand. The stronger economy may cause some costs such as interest rates to rise, which will negatively impact the Company’s profits unless these increased costs can be passed through to customers through higher rental rates. The Company’s corporate operations should continue to benefit from franchisee acquisitions; however, the pace of acquisitions will be slower than in 2004 and 2003. Leasing revenue is expected to decline as a result of franchisee acquisitions and from continued competition with the Company’s leasing program. Recent announcements from vehicle manufacturers indicate that availability of new vehicles for the car rental industry in 2005 may be constrained, which may result in increased vehicle holding costs in 2005. Conversely, the constrained fleet may result in increased pricing in the rental car industry and may provide support for a continuing favorable used car market. During 2005, due to more limited availability of Program Vehicles and a projected continuing favorable used car market, the Company intends to purchase a higher level of Non-Program Vehicles, which will increase the Company’s risk to fluctuations in the used car market. The Company will continue to make investments in improved IT systems, marketing initiatives and infrastructure to facilitate additional growth.

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Table of Contents

`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 Note 11 of Notes to 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. However, this foreign currency risk is mitigated by the underlying collateral which is the Canadian fleet. The fair value and average receive rate of the interest rate swaps is calculated using projected market interest rates over the term of the related debt instruments as provided by the counter parties.


Expected Maturity Dates as of December 31, 2004	2005		2006		2007		2008		Total		Fair Value December 31, 2004

(in thousands)

Debt:

Vehicle debt and obligations - floating rates (1)	$	1,143,097	$	295,833	$	312,500	$	500,000	$	2,251,430	$	2,250,963

Weighted average interest rates		3.28


		As of December 31,

		2004		2003		2002

Franchisee locations:
	Dollar		164		145		129
	Thrifty		343		368		450

	Total franchisee locations		507		513		579


Franchisees:
	Dollar		75		78		56
	Thrifty		154		170		187

	Total franchisees		229		248		243

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.FORM 10-K

TABLE OF CONTENTS

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.

FORM 10-K