Hertz 2011 Annual Report Download - page 77

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
On September 1, 2011, Hertz acquired 100% of the equity interest in Donlen, a leading provider of fleet
leasing and management services for corporate fleets and for the four months ended December 31,
2011 (period it was owned by Hertz), had an average of approximately 137,000 vehicles under lease and
management. Donlen provides Hertz an immediate leadership position in long-term car, truck and
equipment leasing and fleet management. Donlen’s fleet management programs provide outsource
solutions to reduce fleet operating costs and improve driver productivity. These programs include
administration of preventive maintenance, advisory services, and fuel and accident management along
with other complementary services. This transaction is part of the overall growth strategy of Hertz to
provide the most flexible transportation programs for corporate and general consumers. Additionally,
Donlen brings to Hertz a specialized consulting and technology expertise that will enable us to model,
measure and manage fleet performance more effectively and efficiently.
While Hertz Holdings withdrew its exchange offer for Dollar Thrifty’s common stock in October 2011, we
continue to believe that a merger with Dollar Thrifty is in the best interests of both companies. Hertz
Holdings remains engaged with the Federal Trade Commission to secure antitrust clearance with
respect to an acquisition of Dollar Thrifty, which would require (among other things) the disposition of
Advantage. If and when we are in a position to obtain antitrust clearance, we will reassess the
appropriate price and other terms and conditions of an offer for Dollar Thrifty. We can offer no assurance
that any transaction with Dollar Thrifty will be commenced or consummated.
Equipment Rental
HERC experienced higher rental volumes and pricing worldwide for year ended December 31, 2011
compared to the prior year period as the industry continued its recovery and fleet levels began to align
with demand in the industry. Specifically, we continued to see growth in our specialty services such as
Pump & Power, Industrial Plant Services and Hertz Entertainment Services capitalizing on the
opportunities in these strategic market niches. Additionally, there were increased opportunities in 2011
as rental solutions became a more viable alternative to contractors especially with the fluctuating
uncertainty in the economy enabling HERC and other large rental companies to gain market share.
Seasonality
Our car rental and equipment rental operations are seasonal businesses, with decreased levels of
business in the winter months and heightened activity during the spring and summer. We have the ability
to dynamically manage fleet capacity, the most significant portion of our cost structure, to meet market
demand. For instance, to accommodate increased demand, we increase our available fleet and staff
during the second and third quarters of the year. As business demand declines, fleet and staff are
decreased accordingly. A number of our other major operating costs, including airport concession fees,
commissions and vehicle liability expenses, are directly related to revenues or transaction volumes. In
addition, our management expects to utilize enhanced process improvements, including efficiency
initiatives and the use of our information technology systems, to help manage our variable costs.
Approximately two-thirds of our typical annual operating costs represent variable costs, while the
remaining one-third is fixed or semi-fixed. We also maintain a flexible workforce, with a significant
number of part time and seasonal workers. However, certain operating expenses, including rent,
insurance, and administrative overhead, remain fixed and cannot be adjusted for seasonal demand.
Revenues related to our fleet management services are generally not seasonal.
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