Hertz 2011 Annual Report Download - page 75

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements in this discussion and analysis regarding industry outlook, our expectations regarding the
performance of our business and the other non-historical statements are forward-looking statements.
These forward-looking statements are subject to numerous risks and uncertainties, including, but not
limited to, the risks and uncertainties described in ‘‘Item 1A—Risk Factors.’’ The following discussion and
analysis provides information that we believe to be relevant to an understanding of our consolidated
financial condition and results of operations. Our actual results may differ materially from those contained
in or implied by any forward-looking statements. You should read the following discussion and analysis
together with the sections entitled ‘‘Cautionary Note Regarding Forward-Looking Statements,’’
‘‘Item 1A—Risk Factors,’’ ‘‘Item 6—Selected Financial Data’’ and our consolidated financial statements
and related notes included in this Annual Report under the caption ‘‘Item 8—Financial Statements and
Supplementary Data.’’
Overview
We are engaged principally in the business of renting and leasing of cars and equipment.
Our revenues primarily are derived from rental and related charges and consist of:
• Car rental revenues (revenues from all company-operated car rental and fleet leasing operations
and management services, including charges to customers for the reimbursement of costs
incurred relating to airport concession fees and vehicle license fees, the fueling of vehicles and
the sale of loss or collision damage waivers, liability insurance coverage and other products);
• Equipment rental revenues (revenues from all company-operated equipment rental operations,
including amounts charged to customers for the fueling and delivery of equipment and sale of
loss damage waivers, as well as revenues from the sale of new equipment and consumables);
and
• Other revenues (primarily relates to fees and certain cost reimbursements from our licensees and
revenues from our third-party claim management services).
Our expenses primarily consist of:
• Direct operating expenses (primarily wages and related benefits; commissions and concession
fees paid to airport authorities, travel agents and others; facility, self-insurance and reservation
costs; the cost of new equipment and consumables purchased for resale; and other costs relating
to the operation and rental of revenue earning equipment, such as damage, maintenance and
fuel costs);
• Depreciation expense and lease charges relating to revenue earning equipment (including net
gains or losses on the disposal of such equipment). Revenue earning equipment includes cars
and rental equipment;
• Selling, general and administrative expenses (including advertising); and
• Interest expense.
Our profitability is primarily a function of the volume, mix and pricing of rental transactions and the
utilization of cars and equipment. Significant changes in the purchase price or residual values of cars
and equipment or interest rates can have a significant effect on our profitability depending on our ability
to adjust pricing for these changes. We continue to balance our mix of non-program and program
vehicles based on market conditions. Our business requires significant expenditures for cars and
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