Dollar Rent A Car 2011 Annual Report Download - page 42

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Selling, general and administrative expenses for 2010 increased $9.0 million. As a percent of revenue, selling, general and administrative expenses were
13.6% in 2010, compared to 13.0% in 2009.
The increase in selling, general and administrative expenses in 2010 resulted from the following:
Ø Merger-related costs incurred in 2010 totaled $22.6 million.
Ø Outsourcing expenses decreased $6.2 million due primarily to a lower fee attributable to fewer IT-related projects and to a greater number of
capitalizable projects in 2010 as compared to 2009.
Ø Outside services expense decreased $3.6 million primarily due to reduced consulting expense.
Ø The change in the market value of investments in the Company’s deferred compensation and retirement plans decreased selling, general and
administrative expenses by $1.8 million in 2010 compared to 2009, which was offset by a corresponding gain on those investments that is
recognized in other revenue and, therefore, did not impact net income.
Ø Sales and marketing expense decreased $0.7 million due primarily to a decrease in print media, marketing programs tied to transaction levels and
reduced promotional advertising expenses.
Ø All other selling, general and administrative expenses decreased by $1.3 million.
Net interest expense decreased $7.3 million in 2010 primarily due to lower average vehicle debt, partially offset by reduced interest income as the Company
used excess restricted cash on hand to reduce indebtedness, and to reinvest in the rental fleet. As a percent of revenue, net interest expense was 5.8% in 2010,
compared to 6.2% in 2009.
Long-lived asset impairment expense decreased $1.5 million in 2010 compared to 2009, due to lower write-offs of long-lived assets at its company-owned
stores and software no longer in use.
The change in fair value of the Company’s derivative agreements was an increase of $28.7 million in 2010 compared to an increase of $28.8 million in 2009,
due to market changes in the interest rate yield curve and shorter time to maturity of the derivative agreements.
The income tax expense for 2010 was $90.2 million. The Company reports taxable income for the U.S. and Canada in separate tax jurisdictions and
establishes provisions separately for each jurisdiction. On a separate, domestic basis, the U.S. effective tax rate approximates the statutory tax rate including
the effect of state income taxes. Our overall effective tax rate will vary depending on the amount of taxable income generated by our operations in various states
and the applicable tax rates in those states, as well as the proportion those taxes represent of our pretax income on a consolidated basis. Based on the
significant improvement in the Company’s consolidated pretax income from 2009 to 2010, the impact of state income taxes resulted in a decline in the overall
consolidated effective tax rate from 44.4% to 40.7%.
Operating Results
The Company had income before income taxes of $221.4 million in 2010 compared to income before income taxes of $81.0 million in 2009.
Liquidity and Capital Resources
The Company’s primary uses of liquidity are for the purchase of vehicles for its rental fleet, including required collateral enhancement under its fleet financing
structures, non-vehicle capital expenditures and working capital.
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