TULSA, Okla. — In addition to announcing that his company is on pace to hit record profits this year, Dollar Thrifty Automotive Group's chief executive officer also publicly responded to Avis Budget Group's recent bid to acquire the company. Scott Thompson said the company looks favorably on the offer, with one or two hitches.

In essence, Thompson said his board of directors need the bid to meet key three requirements:

—Is it more favorable, from a financial point of view, to our stockholders than the Hertz merger?

—Is it supported by financing that is fully committed or reasonably likely to be obtained?

—Is it reasonably expected to be consummated on a timely basis?

When it comes to the first two items, Avis has it covered, according to Thompson.

"We believe that your proposal would clearly satisfy the first of these requirements. Furthermore, we think that the draft financing commitment letters that you have furnished, when finalized in the manner described by your advisers, will provide a reasonable basis for concluding that the second requirement can be satisfied," Thompson wrote in an open letter to Avis.

And here is the hitch: "However, we do not have sufficient information to establish satisfaction of the third prong of the requirements," the CEO indicated.

"As you are aware, our respective advisers have had numerous discussions with respect to the antitrust risks attendant to a merger of our companies. Your legal advisers have stated clearly their position, based on their econometric and other analyses, that the divestitures to which you have committed in your proposal are sufficient to remediate any competitive issues. But citing our inability to enter into a joint defense agreement with you as well as our contractual obligations to cooperate with Hertz, your advisers have been unwilling to disclose details of their data and analyses beyond their general approach to the issues," Thompson explained.

He went on to highlight another factor troubling the DTAG board of directors.

"More problematic is Avis Budget's unwillingness to provide a reverse termination fee. As we have stated on several occasions, our board accords substantial weight to the extent to which Avis Budget is willing to share the risk of the ultimate regulatory outcome," the CEO wrote in his letter to Avis. "This is especially true where Avis Budget is unable to provide compelling objective evidence in favor of its antitrust position.

"Indeed, Avis Budget's unwillingness to offer a meaningful reverse termination fee can only represent to us, to the market and to any objective observer a lack of confidence by Avis Budget in its position. As you know, transaction certainty has consistently been a key criterion for Dollar Thrifty in evaluating possible transactions. We feel strongly that in order to merit favorable consideration by our board, the relative magnitude of the reverse termination fee should be at least consistent with that of the Hertz transaction. Obviously, a fee of greater magnitude would demonstrate even greater confidence in your ability to procure antitrust approvals, as well as your willingness to take steps beyond your stated divestiture commitment to do so," he continued.

Disagreeing with Avis advisers, Thompson also wrote, "Your advisers have suggested that there is a natural trade-off between the transaction consideration and deal certainty. Unfortunately, the 'Superior Proposal' determination simply does not work in that way. Each of the three prongs must be met, and a higher price cannot compensate for a deficiency in deal certainty.

"But even if we could blend the factors as you suggest, Avis Budget's unwillingness to provide a reverse termination fee, coupled with your disinclination to provide analytical data supporting your antitrust position, leaves us incapable of making such an assessment," the DTAG executive contended.

However, he invites Avis to revamp its offer.

"We stand ready to review and consider any modifications you may wish to make to your proposal (or any additional supporting information) to address these concerns," Thompson concluded.

For full details of the Avis bid, click here.

Record Profit Potential

In midst of Avis and Hertz battling to acquire the company, Dollar Thrifty Automotive Group's Thompson said the company is well on its way to posting its highest yearly profits ever.

The company's corporate adjusted EBITDA climbed double digits for the sixth straight quarter.

Specifically, Dollar Thrifty's corporate adjusted EBITDA was $74.3 million, up significantly from the $20.9 million posted a year ago. Officials pointed out that bringing down the most recent results was $6.8 million in merger-related expenses.

So without those costs, the corporate EBITDA climbs to $81.1 million.

"The company's ongoing efforts in the areas of revenue management, expense control and fleet management continue to reap significant benefits, as demonstrated by our sixth consecutive quarter of year-over-year double-digit growth in corporate adjusted EBITDA," stated Dollar Thrifty president and chief executive officer Scott Thompson.

"Our day-to-day focus continues to be on improving the company's return on assets while maximizing our cash flow," he added. "I am pleased to report that we are on track to make 2010 the most profitable year in the history of the company."

Dollar Thrifty took in $42.3 million in net income during the second quarter. In the same period of 2009, net income was $12.4 million.

Included in both periods were impacts related to the fair value of derivatives increasing. Counted in the most recent period's net income was income of $0.15 per diluted share, while the year-ago period's net income included income of $0.24 per diluted share.

Dollar Thrifty noted that it recorded $38 million in non-GAAP net income during the most recent period, up from non-GAAP net income of $6.9 million in the second quarter of last year.

These non-GAAP results do not include the impact from the changes in the fair value of derivatives (net of tax) nor do they include the non-cash expenses having to do with impairment of long-lived assets (net of tax).

Continuing on, Dollar Thrifty posted total revenue of $396.2 million, down from $399.6 million in the year-ago period. The company attributed most of its revenue drop-off to softer vehicle leasing revenue. This vehicle leasing decline stemmed from the planned pull-back in leasing to franchisees, officials explained.

Meanwhile, Dollar Thrifty saw year-over-year stability in vehicle rental revenues. The company noted that rate per day climbed 80 basis points, which balanced out rental days falling by 50 basis points.

There was a 0.8-percent dip in average fleet from the prior year and a 0.9-percent increase in ending fleet.

"We are pleased with the results for the quarter, having realized increases in transaction days and utilization on a same-store basis, while continuing to realize pricing improvement in a more challenging and competitive pricing environment," Thompson noted.

"Based on our solid second-quarter results combined with our current reservation book and our outlook for the economy, we expect revenue growth going forward," he continued.

During the period, vehicle depreciation per unit per month improved $193, a 47.1-percent benefit from the year-ago period. These strides stemmed from a healthier used-car market as well as fleet planning and remarketing adjustments that Dollar Thrifty put in place last year to cut per unit fleet depreciation expenses and lessen its enterprise risk.

Dollar Thrifty's second-quarter fleet utilization was 80.8 percent, a gain of 20 basis points year-over-year.

The company did see a year-over-year upswing in operating expenses largely because of $6.8 million in merger-related expenses, "in addition to a $3 million increase in self-insured vehicle liability reserves related to a vicarious liability claim that is currently under appeal by the company," according to Dollar Thrifty.

Cost-reduction efforts and cost-efficiency measures currently in play helped to curb some of the impact from the aforementioned expenses, officials noted. 

Looking at things proportionally, Dollar Thrifty noted that its second-quarter operating expenses represented 62.7 percent of quarterly revenues from the period. Meanwhile, a year ago, that proportion was 61 percent. Largely driving this uptick were the previously mentioned cost increases.

Liquidity

As far as liquidity and capital resources go, cash and cash equivalents for the company totaled $370 million at the end of the second quarter. There also was $114 million in restricted cash and investments, which is mostly earmarked for buying vehicles or repaying financial obligations.

The tangible net worth of Dollar Thrifty as of June 30 was $443 million, officials noted.

Remainder of 2010

Looking forward, Dollar Thrifty maintained its most recent full-year projections regarding revenue, fleet costs and corporate adjusted EBITDA. It also kept its guidance for 2011 fleet costs the same, as well.

Full-year fleet costs will likely be in the $245 to $255 per unit per month range, officials said. Driving this projection were the first-half results along with the fleet-cost projections for the second half of the year.

"The company noted that it sold approximately 32,500 risk vehicles during the first half of 2010 at a cumulative pretax gain of $53.2 million," officials explained. "The company also noted that it expects gains from vehicle dispositions to decline significantly during the second half of 2010, and as a result, expects its depreciation per unit per month to be within a range from $300 to $310 per unit per month during the third and fourth quarters of 2010."

Corporate adjusted EBITDA for 2010 is projected come in between $200 million and $220 million. This does not include merger-related expenses. This would be up from $99.4 million a year ago.

The projections for corporate adjusted EBITDA are based on its year-to-date results as well as its expectations for revenue and fleet costs going forward.

Full-year rental revenue will likely be up 1 to 2 percent compared to 2009 because of, "growth in the back half of 2010 is expected to more than offset the decline realized in the first half of the year," officials shared.  

Rental revenue was down 1.65 percent through the first six months of the year.

Meanwhile, fleet costs for 2011 are expected to be between $300 and $310 per unit per month.

"The company noted that the ongoing positive effects of changes made in its operations and fleet management, combined with solid macroeconomic factors in the used-car market, are expected to impact fleet costs in 2011 and beyond," officials shared.