Thrifty Car Rental 2011 Annual Report Download - page 61

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the requirement to maintain a minimum of $100 million of cash and cash equivalents and
replacing it with certain other covenants.
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 8). A portion of these funds is restricted due to the Like-
Kind Exchange Program (hereinafter defined) for deferred tax gains on eligible vehicle
remarketing. As permitted by the indenture, these funds are primarily held in highly rated
money market funds with investments primarily in government and corporate obligations.
Restricted cash and investments are excluded from cash and cash equivalents. Interest earned
on restricted cash and investments was $0.4 million, $0.7 million and $3.2 million, for 2011,
2010 and 2009, respectively, and remains in restricted cash and investments.
Concentration of Credit Risk – Financial instruments that 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
and caps, 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 and caps 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
collectability.
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. At December 31, 2011, Non-Program
Vehicles accounted for approximately 96% of the Company’s total fleet.
The Company must estimate the expected residual values of Non-Program Vehicles 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 market conditions at the time of sale,
including the impact of seasonality on vehicle residuals. The Company evaluates estimated
residual values at least quarterly, and adjusts depreciation rates accordingly, on a prospective
basis. 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 either shorter or longer than the life used for depreciation purposes
could result in a loss or gain on sale. Vehicle rental companies bear residual value risk for
these vehicles, which are referred to as “Non-Program Vehicles”. Generally, the average
holding term for Non-Program Vehicles is approximately 18 to 22 months.