TULSA, Okla. -

As Hertz Global Holdings announced it extended the expiration date of its exchange offer for the company, Dollar Thrifty Automotive Group reported a slight uptick in second-quarter net income.

DTAG officials computed that their second-quarter net income settled at $42.5 million or $1.36 per diluted share. In the year-ago period, the level was $42.3 million or $1.40 per diluted share.

The company noted Monday that the second-quarter amount included income of 1 cent per diluted share, compared to income of 15 cents per diluted share during the second quarter of last year related to increases in fair value of derivatives.

Elsewhere, Dollar Thrifty determined second-quarter non-GAAP net income came in at $42.3 million or $1.35 per diluted share. A year earlier, it was $38.0 million or $1.26 per diluted share.

Officials explained non-GAAP net income excludes the increase or decrease in fair value of derivatives and the non-cash charges related to the impairment of long-lived assets, net of related tax impact.

They also noted that both their GAAP and non-GAAP earnings were negatively impacted by merger-related expenses of $1.1 million and $6.8 million incurred during the second quarter of 2011 and 2010, respectively.  

Additionally, the company noted that gains on risk vehicle sales totaled $17.8 million in the second quarter, down from $27.5 million in the second quarter of last year. DTAG said the decline was attributable to an approximate 10,500 unit decrease in vehicles sold compared to 2010 as the company deferred disposition of certain vehicles to protect against potential vehicle supply disruptions resulting from the crisis in Japan in March. 

Dollar Thrifty highlighted there were ultimately no significant vehicle supply disruptions during the quarter, and none are currently expected throughout the remainder of 2011. 

In other elements of its balance sheet, the company reported corporate adjusted EBITDA for the second quarter of $81.2 million, compared to $74.3 million in the second quarter of 2010.

Again, officials pointed out corporate adjusted EBITDA for the second quarters of 2011 and 2010 were negatively impacted by merger-related expenses of $1.1 million and $6.8 million, respectively.

Scott Thompson, DTAG’s president and chief executive officer, began his assessment of second-quarter performance by stating, “We are very pleased with our results for the quarter, particularly the corporate adjusted EBITDA margin of 20.5 percent achieved during a period when our car gains declined and rental revenue per day was under pressure.

“Our ongoing efforts to maintain very competitive fleet costs and to control operating expenses allowed us to continue to generate increased corporate adjusted EBITDA and profits in a less favorable environment,” Thompson continued.

Also for the quarter that ended June 30, the company found its total revenue totaled $395.1 million, consistent with the comparable period a year ago.
DTAG discovered vehicle rental revenue for the quarter was unchanged from the prior year as a 3.0 percent increase in rental days was offset by a 3.4 percent decrease in revenue per day.

Officials mentioned the average fleet for the quarter was up 7.6 percent, compared to the prior year period as the company held additional fleet to protect against potential supply disruptions and to support increased rental day demand.  

“While we were pleased with our continued rental day growth during the quarter, the rate per day environment was a headwind, negatively impacting top line revenue growth,” Thompson acknowledged. “We believe that fleet decisions in the industry following the crisis in Japan impacted fleet levels and pricing in the quarter,” he continued. “The rate environment is improving in the third quarter compared to the first half of 2011.

"However, it is still slightly negative to prior year levels,” Thompson added.

In other segments of its second-quarter report, DTAG determined its fleet cost per vehicle was $188 per month, compared to $193 per month in the second quarter of last year. The company indicated the decrease in fleet cost per vehicle was due primarily to a decrease in the base depreciation rates on the vehicles given the ongoing strength of the used-vehicle market and the resulting favorable impact on residual values.

Officials went on to note the impact of the base depreciation rate change was offset by a $9.7 million reduction in gains on sales of risk vehicles from $27.5 million in the second quarter of 2010 to $17.8 million in the second quarter of this year.

“As previously noted, the decline was due to an approximate 10,500 unit decrease in the number of units sold on a year-over-year basis,” officials emphasized.

“On a per unit basis, the average gain per vehicle sold during the second quarter of 2011 was $2,116 per unit, compared to $1,459 per unit in the second quarter of 2010,” they added.

In more second-quarter numbers, DTAG’s direct vehicle and operating expenses and selling, general and administrative expenses (operating expenses) declined from $248.5 to $239.8 million. The company said that drop came in spite of an increase in the average rental fleet of 7.6 percent on a year-over-year basis.

“The decline was primarily attributable to favorable loss experience in the company’s vehicle insurance programs and a $5.7 million decrease in merger-related expenses on a year-over-year basis,” DTAG pointed out.

Furthermore, excluding merger-related expenses incurred in both periods, Dollar Thrifty computed its operating expenses declined to 60.4 percent of revenues for the second quarter, compared to 61.0 percent of revenues during the second quarter a year ago.

Six-Month Results

For the six months that ended June 30, DTAG reported its net income came in at $59.0 million or $1.89 per diluted share, compared to net income of $69.6 million or $2.31 per diluted share for the comparable period in 2010.

The company said second-quarter net income included income of 7 cents per diluted share, compared to income of 29 cents per diluted share for the first six months of last year, related to increases in fair value of derivatives. 

Officials determined non-GAAP net income was $56.7 million or $1.82 per diluted share, compared to the first six months of 2010 when the company generated $61.0 million or $2.02 per diluted share.

The company again noted that both its GAAP and non-GAAP earnings for the six months ended June 30 were negatively impacted by merger-related expenses of $4.6 million and $8.5 million incurred during 2011 and 2010, respectively.

Additionally, DTAG pointed out gains on risk vehicle sales totaled $25.8 million for the six months ended June 30, down from $53.2 million recorded in the year-ago period. The company insisted the decline was primarily due to a decrease in the number of vehicles sold of approximately 18,000 units on a year-over-year basis.   

The company reported corporate adjusted EBITDA of $117.5 million, compared to $123.7 million in the first half of 2010. 

Liquidity and Capital Resources  

As of June 30, DTAG determined it had $456 million in cash and cash equivalents and an additional $126 million in restricted cash and investments primarily available for the purchase of vehicles and/or repayment of vehicle financing obligations.

Since Dec. 31, the company explained it has made seasonal fleet investments of approximately $460 million that were funded through a combination of unrestricted cash, restricted cash and borrowings under vehicle financing facilities. 

Given the company’s significant cash position and the cost differential between the interest rate on its Canadian fleet financing facility and interest earned on investment of excess cash, Dollar Thrifty highlighted that it fully repaid and terminated its Canadian financing facility during the second quarter.

Officials recapped that direct investments in the Canadian fleet totaled approximately $100 million as of the end of the second quarter.

They also noted that given their excess cash position, Dollar Thrifty expects to utilize cash on hand to repay all of its outstanding corporate debt totaling approximately $143 million prior to year-end. These actions are expected to reduce the company’s interest expense by approximately $9 million annually.

As previously announced in July, the company completed the issuance of $500 million of Series 2011-1 medium-term notes that provide significant additional capacity to meet future debt maturities and fleet financing needs and extend the company’s debt maturity profile.

The Class A and B notes have an expected final maturity date of February 2015 and have a weighted-average coupon of 2.81 percent.

DTAG said the cost of funds on the notes is lower than the majority of the company’s existing fleet financing sources and substantially lower than its existing medium-term notes that bear a fixed rate of interest of 5.16 percent.

Additionally, Dollar Thrifty stressed the notes have a blended collateral enhancement rate of approximately 45 percent, which is significantly lower than the company’s variable funding notes issued in 2010 and will allow the company to reduce its overall equity investment in the fleet.

Also, as of the end of the second quarter, DTAG pinpointed that its tangible net worth was $584 million, and the company had no net corporate debt.

“The company had a gross leverage ratio of approximately 0.62 to 1 based on trailing 12 months corporate adjusted EBITDA as of June 30,” officials noted.

FTC Update

Dollar Thrifty officials emphasized the company is currently continuing to cooperate with Avis Budget Group and Hertz Global Holdings with respect to the Federal Trade Commission review.

“The company does not have an agreement, written or verbal, regarding merger terms, including price, with either Hertz or Avis Budget,” DTAG officials reiterated during its second-quarter financial report.

In a separate announcement revealed late last week, Hertz extended the expiration date of its exchange offer for all outstanding shares of Dollar Thrifty for $57.60 in cash and 0.8546 shares of Hertz common stock. 

Hertz indicated the exchange offer and withdrawal rights are now scheduled to expire at midnight ET on Sept. 9 unless further extended. The exchange offer was previously scheduled to expire at midnight ET last Friday.

“Except for the extension of the exchange offer expiration date, all other terms and conditions of the exchange offer remain unchanged,” Hertz officials reiterated.

“As of the close of business on Aug. 5, approximately 2,664,436 shares of Dollar Thrifty common stock had been tendered into and not withdrawn from the exchange offer,” they tabulated.

Stockholder questions regarding the exchange offer or requests for exchange offer documents can be directed to Hertz’s information agent for the exchange offer, Innisfree M&A, at (877) 456-3507.

Stockholder questions regarding the exchange offer can also be directed to Hertz’s dealer manager for the exchange offer, Barclays Capital, at (888) 610-5877.

Barclays Capital, Lazard, Bank of America Merrill Lynch and Deutsche Bank Securities are acting as financial advisors to Hertz.  Barclays Capital is acting as the dealer manager for the exchange offer.

Cravath, Swaine & Moore LLP, Debevoise & Plimpton LLP and Jones Day are acting as legal advisors to Hertz.

William Blair & Co. is acting as a financial advisor to Hertz in connection with the sale of its Advantage brand.

DTAG’s 2011 Outlook Update  

Turning back to Dollar Thrifty’s report, the company also provided updated guidance for revenue, corporate adjusted EBITDA and fleet cost expectations for the full year of 2011.

“The company’s updated revenue guidance is primarily influenced by the rate per day environment experienced in the first six months of 2011,” company officials began.

“If the rate environment continues to remain under pressure during the second half of 2011, the company would expect that rate environment, combined with single digit rental day growth, to result in full year 2011 revenues in line with 2010,” they continued.

“The company reported that it has substantially completed its 2012 fleet purchase negotiations and the overall economics were favorable to expectations,” DTAG officials went on to say. “Additionally, the company noted that the used-vehicle market has been very robust throughout the first half of the year, and the company expects that trend to continue through the back half of the year, subject to normal seasonal adjustments. Finally, the company noted that it expects the used car market to be slightly less robust in 2012 than 2011, although better than its previously stated outlook for 2012 and beyond.”

Accordingly, the company lowered its fleet cost outlook for the full year of 2011 to range from $215 to $225 per vehicle per month. 

Based on the factors outlined, DTAG is currently targeting corporate adjusted EBITDA to be within a range of $270 million to $290 million.  The company pointed out this estimate excludes the impact of merger-related expenses incurred to date and that may be incurred in the second half of this year.

“We are continuing to benefit from our strong balance sheet, low cost structure, established brands and fleet management initiatives, which have been augmented by the overall strength of the used vehicle market,” Thompson emphasized.

“We produced record financial results in 2010 and are optimistic that we are on track to have another outstanding year in 2011,” Thompson concluded.

Auto Remarketing also published recent financial reports from Hertz and Avis:

—Hertz Posts 2Q Profitability Levels “Not Seen Before”
—Like Competitor, Avis Records Strong 2Q Financial Performance