Dollar Rent A Car 2011 Annual Report Download - page 48

In September 2010, Congress passed and the President signed into law the Small Business Jobs and Credit Act of 2010 (the “Small Business Act”), which
extended 50% bonus depreciation allowances for assets placed in service in 2010, retroactively to the first of the year. In December 2010, Congress passed and
the President signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Tax Relief Act”), which increased
the bonus depreciation allowance to 100% for assets placed in service from September 9, 2010 through December 31, 2011, as well as provided for 50%
bonus depreciation for assets placed in service in 2012. During the first quarter of 2011, the Company received federal tax refunds of $50 million based on
overpayments of estimated taxes made in 2010, as a result of the enactment of the Small Business and Tax Relief Acts.
The Like-Kind Exchange Program has historically increased the amount of cash and investments restricted for the purchase of replacement vehicles,
especially during seasonally reduced fleet periods. At December 31, 2011, restricted cash and investments totaled $353.3 million and are restricted for the
acquisition of revenue-earning vehicles and other specified uses as defined under asset-backed financing programs 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.
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. Inflation did not have a material impact on the Company’s results of operations for the three years in the period ended
December 31, 2011.
Critical Accounting Policies and Estimates
As with most companies, the Company must exercise judgment due to the level of subjectivity used in estimating certain costs included in its results of
operations. The more significant items include:
 – Revenue-earning vehicles are stated at cost, net of related discounts. At
December 31, 2011, approximately 96% of the Company’s fleet consisted of Non-Program Vehicles.
The Company must estimate the expected residual values of Non-Program Vehicles at the expected time of disposal to determine monthly depreciation
rates. The estimation of residual values requires the Company to make assumptions regarding the age and mileage of the car at the time of disposal,
as well as expected used vehicle auction market conditions. The Company reevaluates estimated residual values at least quarterly and adjusts
depreciation rates as appropriate. 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 at the time of sale. If the actual timing of disposal is either shorter or longer than the life
used for depreciation purposes, then a loss or gain could result on sale. A one percent change in the expected residual value of Non-Program Vehicles
sold during 2011 would have impacted vehicle depreciation expense net by $5.0 million. The average holding term for Non-Program Vehicles was
approximately 18 to 22 months for 2011.
For Program Vehicles, the Company is required to depreciate the vehicle according to the terms of the guaranteed depreciation or repurchase program
and in doing so is guaranteed to receive the full net book value in proceeds upon the sale of the vehicle. In some cases, the sales proceeds are received
directly from the auctions, with any shortfall in value being paid by the vehicle manufacturer.
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