Dollar Rent A Car 2011 Annual Report Download - page 38

Expenses
$ Increase/ % Increase/
2011 2010 (decrease) (decrease)
(in millions)
Direct vehicle and operating $ 751.5 $ 745.5 $ 6.0 0.8%
Vehicle depreciation and lease charges, net 271.0 299.2 (28.2) (9.4%)
Selling, general and administrative 191.0 209.3 (18.3) (8.7%)
Interest expense, net of interest income 77.4 89.3 (11.9) (13.3%)
Long-lived asset impairment - 1.1 (1.1) (100.0%)
Total expenses $ 1,290.9 $ 1,344.4 $ (53.5) (4.0%)
(Increase) decrease in fair value of derivatives $ (3.2) $ (28.7) $ 25.5 (88.7%)
Direct vehicle and operating expenses increased $6.0 million, primarily due to an increase in the number of rental days during the period of 3.8%, partially
offset by a significant reduction in insurance-related expenses. As a percent of revenue, direct vehicle and operating expenses were 48.5% in 2011 and 2010.
The increase in direct vehicle and operating expenses in 2011 primarily resulted from the following:
Ø Vehicle-related expenses increased $27.3 million, which included an increase in gasoline expense of $12.6 million and an increase in toll and ticket
expense of $4.4 million. Increased sales of pre-paid fuel and toll road products are a focus for the Company, and the majority of the increase in
these expenses is recovered through customer revenue related to these products. Additionally, the Company experienced a $7.5 million increase in
vehicle maintenance expense due to the increase in the rental fleet size and the number of higher mileage vehicles in the fleet compared to 2010, a
$1.4 million increase in shuttling expense and a $0.7 million increase in general excise and surcharge taxes. All other vehicle-related expenses
increased $0.7 million.
Ø Litigation expense increased $1.7 million primarily due to recording a reserve in respect of a preliminary litigation settlement.
Ø Personnel-related expenses increased $0.4 million, primarily due to a $6.6 million increase in field employee salaries due to merit-based raises, a
$1.5 million increase in rental agent commissions and $1.3 million of one-time incentives. These increases were partially offset by a $5.6 million
decrease in field employee salaries related to a decrease in the number of employees, a $1.5 million decrease in workers compensation expense due
to favorable claims development, a $1.1 million decrease in group insurance expense due to favorable claims and lower number of personnel, and
$0.8 million decrease in the vacation accrual.
Ø Vehicle insurance expenses decreased $21.6 million compared to 2010 as a result of reductions in provisions for future losses as well as
reductions in insurance accrual rates in conjunction with semi-annual third-party actuarial reviews. These decreases were driven by changes in
loss development factors as a result of favorable claims development trends resulting from specific actions taken by the Company to lower its
overall insurance costs. Those steps included, among others, closing a significant number of local market locations and raising acceptable credit
scores for eligible customers in order to reduce the likelihood of adverse selection in certain markets. Additionally, the Company has implemented
drivers’ license validation procedures and requires examinations under oath in order to reduce the risk of fraud and personal injury claims in
certain markets.
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