Dollar Rent A Car 2011 Annual Report Download - page 39

Ø Communications and computer expenses decreased $1.6 million due to cost reduction initiatives.
Net vehicle depreciation and lease charges decreased $28.2 million. As a percent of revenue, net vehicle depreciation expense and lease charges were 17.5% in
2011, compared to 19.5% in 2010.
The decrease in net vehicle depreciation and lease charges resulted from the following:
Ø Ø Vehicle depreciation expense decreased $44.4 million, primarily resulting from a 16.1% decrease in the average depreciation rate due to continued
favorable used vehicle market conditions, partially offset by a 4.8% increase in the average depreciable fleet.
Ø Ø Net vehicle gains on disposal of risk vehicles (reductions to net vehicle depreciation and lease charges), which effectively represent revisions to
previous estimates of vehicle depreciation charges by reducing vehicle depreciation and lease charges, decreased $16.2 million from a $63.1
million gain in 2010 to a $46.9 million gain in 2011. This decrease in gains on vehicle dispositions resulted from approximately 17,700 fewer
units sold in 2011, partially offset by a higher average gain per unit in 2011 as compared to 2010.
Selling, general and administrative expenses for 2011 decreased $18.3 million. As a percent of revenue, selling, general and administrative expenses were
12.3% in 2011, compared to 13.6% in 2010.
The decrease in selling, general and administrative expenses in 2011 primarily resulted from the following:
Ø Merger-related costs decreased $18.0 million.
Ø Outsourcing expenses decreased $1.4 million primarily due to a lower base fee paid to a third party service provider in 2011 as compared to 2010.
Ø Loyalty programs and commission expenses increased $1.4 million primarily due to increased rental days.
Net interest expense decreased $11.9 million in 2011 primarily due to lower average vehicle debt and lower interest rates, partially offset by higher
amortization of deferred financing costs and a $2.7 million write-off of deferred financing fees related to the payoff of the Term Loan (hereinafter defined) and
termination of the Series 2010-1 notes. As a percent of revenue, net interest expense was 5.0% in 2011, compared to 5.8% in 2010.
Long-lived asset impairment expense decreased $1.1 million in 2011, due to write-offs of software no longer in use during 2010 with no corresponding write-
offs in 2011.
The change in fair value of the Company’s derivative agreements was an increase of $3.2 million in 2011 compared to an increase of $28.7 million in 2010,
primarily due to the decrease in the amount of outstanding derivative agreements not designated as hedging instruments, as well as market changes in the
interest rate yield curve and a reduction in the remaining term to maturity of the derivative agreements.
Income tax expense for 2011 was $101.7 million, compared to $90.2 million for 2010. 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. The Company’s overall effective tax rate will vary depending on the amount of taxable income
generated by the Company’s operations in various states and the applicable tax rates in those states, as well as the proportion those taxes represent of the
Company’s pretax income on a consolidated basis. The effective income tax rates for 2011 of 38.9% and 2010 of 40.7% were higher than the statutory rates
principally due to state and local income taxes. The decrease in state income tax rate was attributable to variations in the overall apportionment of income
among states.
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