Dollar Rent A Car 2011 Annual Report Download - page 33

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Table of Contents
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 typically rent vehicles for longer periods than
business customers, resulting in lower costs per transaction due to less frequent operational interaction.
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 through parking income, vehicle leasing, royalty fees and services
provided to franchisees.
The Company’s profitability is primarily a function of the volume and pricing of rental transactions, vehicle utilization rates and depreciation expense.
Significant changes in the purchase or sales 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 its pricing for these changes. The Company’s business requires significant expenditures for vehicles and, consequently,
requires substantial liquidity to finance such expenditures.
In 2011, the Company’s vehicle rental revenues increased when compared to 2010, primarily due to a 3.8% increase in the number of rental days, partially
offset by a 2.9% decrease in average revenue per day.
During 2011, expenses declined 4.0% compared to 2010. The Company had lower net vehicle depreciation and lease charges primarily due to lower
depreciation rates per vehicle resulting from continued favorable conditions in the used car market, mix optimization through a more diversified fleet and
improved remarketing efforts. Selling, general and administrative expenses decreased primarily due to lower merger-related costs. Net interest expense
decreased primarily due to lower average vehicle debt and lower interest rates. Additionally, the Company experienced increases in the fair value of derivatives
in 2011 and 2010 of $3.2 million and $28.7 million, respectively.
The combination of these factors contributed to net income of $159.6 million for the year ended December 31, 2011, compared to net income of $131.2
million for the year ended December 31, 2010. Excluding the change in fair value of derivatives and non-cash charges related to the impairment of long-lived
assets, net of tax, non-GAAP net income was $157.7 million for the year ended December 31, 2011 compared to non-GAAP net income of $115.0 million for
the year ended December 31, 2010. Corporate Adjusted EBITDA for 2011 was $298.6 million compared to $235.7 million in 2010. Additionally, the
Company incurred $4.6 million in merger-related expenses for the year ended December 31, 2011, compared to $22.6 million for the year ended December 31,
2010. Reconciliations of non-GAAP financial measures to the comparable measures calculated in accordance with generally accepted accounting principles in
the United States (“GAAP”) are presented below.
Use of Non-GAAP Measures for Measuring Results
Non-GAAP pretax income, non-GAAP net income and non-GAAP EPS exclude the impact of the (increase) decrease in fair value of derivatives and the impact
of long-lived asset impairments, net of related tax impact (as applicable), from the reported GAAP measures and are further adjusted to exclude merger-related
expenses. Due to volatility resulting from the mark-to-market treatment of the derivatives and the non-operating nature of the non-cash impairments and
merger-related expenses, the Company believes these non-GAAP measures provide an important assessment of year-over-year operating results.
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