Thrifty Car Rental 2009 Annual Report Download - page 57

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separately identified the $100 million of cash on the face of the Consolidated Balance Sheet. These
funds are primarily held in highly rated money market funds with investments primarily in
government and corporate obligations. Interest earned on these funds is included in Cash and Cash
Equivalents on the face of the Consolidated Balance Sheet.
Restricted Cash and Investments – Restricted cash and investments are restricted for the
acquisition of vehicles and other specified uses under the rental car asset backed note indenture
and other agreements (Note 10). A portion of these funds is restricted due to the like-kind exchange
tax program for deferred tax gains on eligible vehicle remarketing. These funds are held in highly
rated money market funds with investments primarily in government and corporate obligations, as
permitted by the indenture. Restricted cash and investments are excluded from cash and cash
equivalents. Interest earned on restricted cash and investments was $3.2 million, $8.9 million and
$14.0 million, for 2009, 2008 and 2007, respectively, and remains in restricted cash and
investments.
Concentration of Credit Risk – Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents, cash and cash
equivalents – required minimum balance, restricted cash and investments, interest rate swaps,
vehicle manufacturer receivables and trade receivables. The Company limits its exposure on cash
and cash equivalents, cash and cash equivalents – required minimum balance and restricted cash
and investments by investing in Aaa or P-1 rated funds and short-term time deposits with a diverse
group of high quality financial institutions. The Company’s exposure relating to interest rate swaps is
mitigated by diversifying the financial instruments among various counterparties, which consist of
major financial institutions. Receivables from vehicle manufacturers consist primarily of amounts
due under guaranteed residual, buyback, incentive and promotion programs. The Company’s
financial condition and results of operations could be adversely affected if one or more of its primary
vehicle manufacturers were unable to meet their obligations to the Company. Concentrations of
credit risk with respect to trade receivables are limited due to the large number of customers
comprising the Company’s customer base and their dispersion across different geographic areas.
Additionally, the Company limits its exposure to credit risk through performing credit reviews and
monitoring the financial strength of its significant accounts.
Allowance for Doubtful Accounts – An allowance for doubtful accounts is generally established
during the period in which receivables are recorded. The allowance is maintained at a level deemed
appropriate based on loss experience and other factors affecting collectibility.
Financing Issue Costs – Financing issue costs related to vehicle debt and the Senior Secured
Credit Facilities are deferred and amortized to interest expense over the term of the related debt
using the effective interest method.
Revenue-Earning Vehicles and Related Vehicle Depreciation Expense – Revenue-earning
vehicles are stated at cost, net of related discounts. In 2009, the Company continued to increase
the level of Non-Program Vehicles in its fleet and at December 31, 2009, Non-Program Vehicles
accounted for approximately 95% of the total fleet.
For these Non-Program Vehicles, the Company must estimate what the residual values of these
vehicles will be 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 the general used vehicle auction market. The
Company evaluates estimated residual values periodically. 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. Actual timing of disposal shorter than the life used for
depreciation purposes could result in a significant loss on sale. For 2009, the average holding term
for Non-Program Vehicles was approximately 18 to 20 months and for Program Vehicles was
approximately six to seven months.
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
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