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Dollar Thrifty Automotive Group Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 6, 2009 04:32PM

Dollar Thrifty Automotive Group Inc. (DTG) filed Quarterly Report for the period ended 2009-06-30. Dollar Thrifty Automotive Group Inc. operates two vehicle rental companies Dollar and Thrifty which maintain separate daily vehicle rental businesses. They also license independent franchisees to rent vehicles under their brands. The Group offers value-priced rental vehicles under the Dollar and Thrifty brands. The Group\'s brands appeal to leisure customers including tourists and to small businesses and independent business travelers. Dollar Thrifty Automotive Group Inc. has a market cap of $434.2 million; its shares were traded at around $20.02 with and P/S ratio of 0.2. Dollar Thrifty Automotive Group Inc. had an annual average earning growth of 2% over the past 10 years. GuruFocus rated Dollar Thrifty Automotive Group Inc. the business predictability rank of 2-star.

Highlight of Business Operations:

During the second quarter of 2009, the Company’s revenues declined primarily due to a 20.3% reduction in the number of rental days due to challenging economic conditions, partially offset by a 12.1% increase in average revenue per day. Additionally, during the quarter, the Company continued its focus on matching fleet capacity with rental demand, which resulted in a reduction of the average fleet by approximately 15%. In addition to a decline in rental volume and fleet size, which lowered vehicle depreciation and direct vehicle and operating expenses during the second quarter of 2009, the Company continued to benefit from the cost reduction efforts made in the second half of 2008. The increase in fair value of derivatives was significantly lower during the second quarter of 2009 as compared to the second quarter of 2008. These items contributed to income before income taxes of $20.1 million for the second quarter of 2009, compared to income before income taxes of $17.0 million in the second quarter of 2008.

Other revenue decreased $0.9 million due to a $1.9 million decrease in leasing revenue, primarily due to elimination of the franchisee leasing program, and a $1.4 million decrease in fees and services revenue from franchisees, partially offset by an increase of $2.7 million in the market value of investments in the Company’s deferred compensation and retirement plans. The revenue relating to the deferred compensation and retirement plans is attributable to the mark-to-market valuation of the corresponding investments and is offset in selling, general and administrative expenses and, therefore, has no impact on net income.

During the first half of 2009, the Company’s revenues declined primarily due to a 16.6% reduction in the number of rental days due to challenging economic conditions, partially offset by an 8.3% increase in average revenue per day. Additionally, during the first half of 2009, the Company continued its focus on matching fleet capacity with rental demand, which resulted in a reduction of the average fleet by approximately 13%. In addition to a decline in rental volume and fleet size, which lowered vehicle depreciation and direct vehicle and operating expenses during the first half of 2009, the Company continued to benefit from cost reduction efforts made in the second half of 2008. Additionally, the Company experienced an increase in the fair value of derivatives in the first half of 2009 compared to a decrease in the first half of 2008. The Company had goodwill and long-lived asset impairment expense of $350.2 million during the first half of 2008, due to non-cash charges relating to goodwill impairment of $281.2 million and reacquired franchise rights impairment of $69.0 million. These items contributed to income before income taxes of $9.2 million for the first half of 2009, compared to a loss before income taxes of $378.6 million in the first half of 2008.

Other revenue decreased $2.4 million due to a decrease of $3.7 million in leasing revenue, primarily due to elimination of the franchise leasing program, a $2.3 million decrease in fees and services revenue and a $0.9 million decrease in parking income, partially offset by a $4.5 million increase in the market value of investments in the Company’s deferred compensation and retirement plans. The revenue relating to the deferred compensation and retirement plans is attributable to the mark-to-market valuation of the corresponding investments and is offset in selling, general and administrative expenses and, therefore, has no impact on net income.

A non-cash goodwill and long-lived asset impairment charge of $350.1 million ($265.2 million after-tax) was recorded in the first quarter of 2008 resulting from a continuing decline in the Company’s stock price which led to a re-evaluation of goodwill and other intangible assets for impairment.

Cash generated from investing activities was $189.0 million. The principal source of cash from investing activities during the six months ended June 30, 2009 was proceeds from the sale of used revenue-earning vehicles, which totaled $718.1 million, partially offset by $479.0 million in purchases of revenue-earning vehicles and the separate classification of $100 million of cash and cash equivalents required to be maintained at all times under the Company’s recent amendment of the Senior Secured Credit Facilities separately identified on the face of the balance sheet as cash and cash equivalents – required minimum balance (see Note 3 of Notes to condensed consolidated financial statements). The Company’s need for cash to finance vehicles is seasonal and typically peaks in the second and third quarters of the year when fleet levels build to meet seasonal rental demand. Fleet levels are the lowest in the first and fourth quarters when rental demand is at a seasonal low. In addition, restricted cash at June 30, 2

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