Dollar Rent A Car 2007 Annual Report Download - page 50

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New Accounting Standards
For a discussion on new accounting standards refer to Note 2 of the Notes to Consolidated Financial
Statements.
Outlook for 2008
The U.S. travel industry faces uncertainty in 2008 due to concerns about the strength of the economy and
the impact on consumer spending. The airline industry reported weak domestic airline passenger traffic
in December 2007 and January 2008. The Company expects the operating environment to remain
challenging through at least the first half of 2008.
Fleet capacity for the rental car industry exceeded consumer demand in December 2007 and January
2008 resulting in weak industry pricing on leisure and discretionary rentals. The industry appears to be
adjusting fleet capacity to better match consumer demand and year over year rental pricing trends are
improving in February and March of 2008. The Company expects to be able to increase rental pricing as
the industry tightens overall fleet capacity to match consumer demand.
The automobile auctions are reporting weaker pricing on used cars which is increasing industry fleet
costs and extending the length of time required to reduce overall industry capacity. The Company
expects 2008 per unit vehicle depreciation costs to increase about 10 percent depending on used car
market pricing. The Company expects vehicle cost increases will be greater in the first half of the year
while absorbing the recent decline in used car prices.
In the third quarter of 2007, the Company began implementing Pros Fleet Management Software, which
will allow the Company to improve fleet planning and efficiencies in its vehicle acquisition and remarketing
efforts along with controlling vehicle costs. The Company expects to begin realizing cost savings from
this implementation in 2008 and realize the full benefits in 2009.
The Company will benefit from cost savings initiatives implemented in 2007 and is implementing
additional cost savings initiatives to reduce certain operating and administrative costs in 2008 as well as
taking other actions to preserve liquidity in 2008.
The Company will continue to monitor developments in the bank and capital markets and believes that its
peak vehicle financing needs for 2008 can be managed through the annual renewal of its existing Conduit
Facility and Commercial Paper Program. The Company expects increases in the level of credit
enhancement for the Commercial Paper Program and Conduit Facility when renewed in 2008. While the
medium term asset backed note market has been volatile, the Company will not need to enter that market
in 2008, despite $500 million of maturities during the year. The Company has no additional maturities of
asset backed medium term notes until 2010.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information about the Company’s market sensitive financial instruments and
constitutes a “forward-looking statement.” The Company’s primary market risk exposure is changing
interest rates, primarily in the United States. The Company manages interest rates through use of a
combination of fixed and floating rate debt and interest rate swap agreements (see Note 11
of Notes to Consolidated Financial Statements). All items described are non-trading and are stated in
U.S. dollars. Because a portion of the Company’s debt is denominated in Canadian dollars, its carrying
value is impacted by exchange rate fluctuations. However, this foreign currency risk is mitigated by the
underlying collateral which is the Canadian fleet. The fair value and average receive rate of the interest
rate swaps is calculated using projected market interest rates over the term of the related debt
instruments as provided by the counter parties.
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