Dollar Thrifty Automotive 10Q 2011 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________

FORM 10-Q

[x]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________to______________

Commission file number 1-13647

____________________

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	73-1356520
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

5330 East 31st Street, Tulsa, Oklahoma 74135

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (918) 660-7700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No____

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No____

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer X Accelerated filer Non-accelerated filer Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X

The number of shares outstanding of the registrant’s Common Stock as of October 28, 2011 was 29,023,511.

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.

FORM 10-Q

CONTENTS

Page

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3.

QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

ITEM 4.

CONTROLS AND PROCEDURES

PART II - OTHER INFORMATION

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF

FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” about our expectations, plans and performance, including those under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Outlook for 2011” and “Liquidity and Capital Resources.” These statements use such words as “may,” “will,” “expect,” “believe,” “intend,” “should,” “could,” “anticipate,” “estimate,” “forecast,” “project,” “plan” and similar expressions. These statements do not guarantee future performance and Dollar Thrifty Automotive Group, Inc. assumes no obligation to update them. Risks and uncertainties that could materially affect future results include:

the risks to our business and growth prospects as a stand-alone company, in light of our dependence on future growth of the economy as a whole to achieve meaningful revenue growth in the key airport and local markets we serve, high barriers to entry in the insurance replacement market, and capital and other constraints on expanding company-owned stores internationally;

the impact of persistent pricing and demand pressures on our results and our low cost structure, particularly in light of the continuing volatility in the global financial and credit markets, and concerns about global economic prospects and the potential for a return of recessionary conditions that could materially adversely affect consumer discretionary spending, including for leisure travel on which we are substantially dependent;

·	the impact of pending and future U.S. governmental action to address budget deficits through reductions in spending and similar austerity measures, which could materially adversely affect unemployment rates and consumer spending levels;

the impact of developments outside the United States, such as the sovereign credit issues in certain countries in the European Union, which could affect the relative volatility of global credit markets generally, and the continuing significant political unrest in certain oil-producing countries, which has contributed to price volatility for petroleum products, and in recent periods higher average gasoline prices, which could affect both broader economic conditions and consumer spending levels;

·	the impact of pricing and other actions by competitors;

our ability to manage our fleet mix to match demand and meet our target for vehicle depreciation costs, particularly in light of the significant increase in the level of risk vehicles (i.e., those vehicles not acquired through a guaranteed residual value program) in our fleet and our exposure to the used vehicle market;

the cost and other terms of acquiring and disposing of automobiles and the impact of conditions in the used vehicle market on our vehicle cost, including the impact on vehicle depreciation costs in 2011 based on recent pricing volatility in the used vehicle market, and our ability to reduce our fleet capacity as and when projected by our plans;

·	the strength of the ongoing recovery in the U.S. automotive industry, particularly in light of our dependence on vehicle supply from U.S. automotive manufacturers, and whether the recovery is sustained;

·	airline travel patterns, including disruptions or reductions in air travel resulting from capacity reductions, pricing actions, severe weather conditions, industry consolidation or other events, particularly given our dependence on leisure travel;

·	access to reservation distribution channels, particularly as the role of the Internet increases in the marketing and sale of travel-related services;

·	the effectiveness of actions we take to manage costs and liquidity;

·	the impact of repurchases of our common stock pursuant to our share repurchase program;

·	our ability to comply with financial covenants, including the new financial covenants included in our amended senior secured credit facilities, and the impact of those covenants on our operating and financial flexibility;

·	our ability to obtain cost-effective financing as needed without unduly restricting our operational flexibility;

whether our preliminary expectations about our federal income tax position, after giving effect to the impact of the Tax Relief Act (as defined herein), are affected by changes in our expected fleet size or operations or further legislative initiatives relating to taxes in the United States or elsewhere;

·	the cost of regulatory compliance, costs and other effects of potential future initiatives, including those directed at climate change and its effects, and the costs and outcome of pending litigation;

·	disruptions in the operation or development of information and communication systems that we rely on, including those relating to methods of payment;

·	local market conditions where we and our franchisees do business, including whether franchisees will continue to have access to capital as needed; and

·	the impact of other events that can disrupt consumer travel, such as natural and man-made catastrophes, pandemics, social unrest and actual and perceived threats or acts of terrorism.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Dollar Thrifty Automotive Group, Inc.

We have reviewed the accompanying condensed consolidated balance sheet of Dollar Thrifty Automotive Group, Inc. and subsidiaries (the “Company”) as of September 30, 2011, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2011, and the condensed consolidated statement of cash flows for the nine-month period ended September 30, 2011. These financial statements are the responsibility of the Company’s management. The condensed consolidated financial statements of the Company as of September 30, 2010, and for the three-month and nine-month periods then ended were reviewed by other accountants whose report dated November 2, 2010 stated that they were not aware of any material modifications that should be made to those statements for them to be in conformity with U.S. generally accepted accounting principles.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements at September 30, 2011, and for the three-month and nine-month periods then ended for them to be in conformity with U.S. generally accepted accounting principles.

The consolidated balance sheet of Dollar Thrifty Automotive Group, Inc. and subsidiaries as of December 31, 2010, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for the year then ended (not presented herein) were audited by other auditors whose report dated February 28, 2011, expressed an unqualified opinion on those statements.

/s/ ERNST & YOUNG LLP

Tulsa, Oklahoma

November 2, 2011

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(In Thousands Except Per Share Data)

	Three Months					Nine Months
	Ended September 30,					Ended September 30,
	(Unaudited)

	2011		2010			2011			2010
REVENUES:
Vehicle rentals	$	435,578	$	425,467		$	1,146,041		$	1,138,029
Other		16,144		18,077			49,157			50,072
Total revenues		451,722		443,544			1,195,198			1,188,101

COSTS AND EXPENSES:
Direct vehicle and operating		214,536		204,207			583,799			577,430
Vehicle depreciation and lease charges, net		63,299		85,732			203,983			208,060
Selling, general and administrative		47,851		59,359			145,641			162,841
Interest expense, net of interest income of		19,627		22,335			58,899			65,392
$306, $472, $1,053 and $965, respectively
Long-lived asset impairment		-		703			-			942
Total costs and expenses		345,313		372,336			992,322			1,014,665

(Increase) decrease in fair value of derivatives		523		(6,464	)		(3,367	)		(21,338	)

INCOME BEFORE INCOME TAXES		105,886		77,672			206,243			194,774

INCOME TAX EXPENSE		39,265		28,507			80,594			76,054

NET INCOME	$	66,621	$	49,165		$	125,649		$	118,720



BASIC INCOME PER SHARE	$	2.30	$	1.72		$	4.35		$	4.15

DILUTED INCOME PER SHARE	$	2.13	$	1.62		$	4.03		$	3.93

See notes to condensed consolidated financial statements.

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(In Thousands Except Share and Per Share Data)

	September 30,			December 31,
	2011			2010
ASSETS	(Unaudited)

Cash and cash equivalents	$	499,473		$	463,153
Cash and cash equivalents-required minimum balance		-			100,000
Restricted cash and investments		201,327			277,407
Receivables, net		99,639			69,456
Prepaid expenses and other assets		73,384			67,482
Revenue-earning vehicles, net		1,604,889			1,341,822
Property and equipment, net		82,578			90,228
Income taxes receivable		11,562			65,803
Software, net		22,336			24,177

Total assets	$	2,595,188		$	2,499,528

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Accounts payable	$	52,650		$	45,483
Accrued liabilities		140,611			167,545
Deferred income tax liability		309,430			242,930
Vehicle insurance reserves		108,741			107,720
Debt and other obligations		1,314,951			1,397,243
Total liabilities		1,926,383			1,960,921

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value:
Authorized 10,000,000 shares; none outstanding		-			-
Common stock, $.01 par value:
Authorized 50,000,000 shares;
35,498,160 and 35,197,167 issued, respectively, and
29,006,441 and 28,763,452 outstanding, respectively		355			352
Additional capital		946,886			940,844
Accumulated deficit		(36,320	)		(161,969	)
Accumulated other comprehensive loss		(10,620	)		(12,329	)
Treasury stock, at cost (6,491,719 and 6,433,715 shares, respectively)		(231,496	)		(228,291	)
Total stockholders' equity		668,805			538,607

Total liabilities and stockholders' equity	$	2,595,188		$	2,499,528

See notes to condensed consolidated financial statements.

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(In Thousands)

	Nine Months
	Ended September 30,
	(Unaudited)

	2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	125,649		$	118,720
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation:
Vehicle depreciation		247,085			271,232
Non-vehicle depreciation		14,559			15,108
Net gains from disposition of revenue-earning vehicles		(43,129	)		(63,214	)
Amortization		5,703			5,472
Performance share incentive, stock option and restricted stock plans		3,124			3,254
Interest income earned on restricted cash and investments		(226	)		(371	)
Long-lived asset impairment		-			942
Recovery of losses on receivables		(428	)		(743	)
Deferred income taxes		59,214			39,089
Change in fair value of derivatives		(3,367	)		(21,338	)
Change in assets and liabilities:
Income taxes payable/receivable		54,241			(28,813	)
Receivables		(1,747	)		4,044
Prepaid expenses and other assets		5,720			(309	)
Accounts payable		4,242			4,392
Accrued liabilities		(4,469	)		9,084
Vehicle insurance reserves		1,021			8,920
Other		(8,708	)		424

Net cash provided by operating activities		458,484			365,893

CASH FLOWS FROM INVESTING ACTIVITIES:
Revenue-earning vehicles - Purchases		(983,879	)		(1,122,825	)
Revenue-earning vehicles - Proceeds from sales		492,008			659,566
Change in cash and cash equivalents - required minimum balance		100,000			-
Net change in restricted cash and investments		76,306			333,309
Property, equipment and software - Purchases		(11,196	)		(18,046	)
Property, equipment and software - Proceeds from sales		353			461

Net cash used in investing activities		(326,408	)		(147,535	)

				(Continued)

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(In Thousands)

			Nine Months
			Ended September 30,
			(Unaudited)

			2011			2010

CASH FLOWS FROM FINANCING ACTIVITIES:
Debt and other obligations:
Proceeds from vehicle debt and other obligations				1,137,903			299,980
Payments of vehicle debt and other obligations				(1,072,073	)		(489,966	)
Payments of non-vehicle debt				(148,125	)		(7,500	)
Change in cash overdraft				126			1,810
Issuance of common shares				2,921			2,964
Net settlement of employee withholding taxes on share-based awards				(3,205	)		(327	)
Financing issue costs				(13,303	)		(6,716	)

Net cash used in financing activities				(95,756	)		(199,755	)

CHANGE IN CASH AND CASH EQUIVALENTS				36,320			18,603

CASH AND CASH EQUIVALENTS:
Beginning of period				463,153			400,404

End of period			$	499,473		$	419,007


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
	Cash paid for (refund of):
		Income taxes to taxing authorities	$	(32,941	)	$	65,932
		Interest	$	50,350		$	61,262


SUPPLEMENTAL DISCLOSURES OF INVESTING AND FINANCING
	NONCASH ACTIVITIES:
	Sales and incentives related to revenue-earning vehicles included in receivables		$	33,348		$	49,988
	Purchases of revenue-earning vehicles included in accounts payable		$	4,421		$	27
	Purchases of property, equipement and software included in accounts payable		$	310		$	43

Certain reclassifications have been made to the 2010 financial information to conform to the classification used in 2011.
See notes to condensed consolidated financial statements.

DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(Unaudited)

1.	BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed consolidated financial statements include the accounts of Dollar Thrifty Automotive Group, Inc. (“DTG”) and its subsidiaries. DTG’s significant wholly owned subsidiaries include DTG Operations, Inc., Thrifty, Inc., Dollar Rent A Car, Inc. and Rental Car Finance Corp. (“RCFC”). Thrifty, Inc. is the parent company of Thrifty Rent-A-Car System, Inc., which is the parent company of Dollar Thrifty Automotive Group Canada Inc. (“DTG Canada”). The term the “Company” is used to refer to DTG, individually or collectively with its consolidated subsidiaries, as the context may require.

The accounting policies set forth in Item 8 - Note 1 of notes to the consolidated financial statements contained in DTG’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2011, have been followed in preparing the accompanying condensed consolidated financial statements.

The condensed consolidated financial statements and notes thereto for interim periods included herein have not been audited by an independent registered public accounting firm. The condensed consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the Company’s opinion, it made all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods presented. Results for interim periods are not necessarily indicative of results for a full year.

2.	CASH AND INVESTMENTS

Cash and Cash Equivalents – Cash and cash equivalents include cash on hand and on deposit, including highly liquid investments with initial maturities of three months or less. Book overdrafts represent outstanding checks not yet presented to the bank and are included in accounts payable to reflect the Company’s outstanding obligations. At September 30, 2011 and December 31, 2010, there was $17.2 million and $17.0 million, respectively, in book overdrafts included in accounts payable. These amounts do not represent bank overdrafts, which would constitute checks presented in excess of cash on hand, and would be effectively a loan to the Company.

Cash and Cash Equivalents – Required Minimum Balance – In 2009, the Company amended its senior secured credit facilities (the “Senior Secured Credit Facilities”). Under the terms of that amendment, the Company was required to maintain a minimum of $100 million at all times. On February 9, 2011, the Company further amended its Senior Secured Credit Facilities, eliminating the requirement to maintain a minimum of $100 million of cash and cash equivalents and replacing it with certain other covenants. See Note 7 for further discussion.

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. A portion of these funds is restricted due to the like-kind exchange tax program 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.

3.	SHARE-BASED PAYMENT PLANS

Long-Term Incentive Plan

At September 30, 2011, the Company’s common stock authorized for issuance under the long-term incentive plan (“LTIP”) for employees and non-employee directors was 2,617,452 shares. The Company has 363,017 shares available for future LTIP awards at September 30, 2011 after reserving for the maximum potential shares that could be awarded under existing LTIP grants. The Company issues new shares from remaining authorized common stock to satisfy LTIP awards.

Compensation cost for performance shares, non-qualified option rights and restricted stock awards is recognized based on the fair value of the awards granted at the grant-date and is amortized to compensation expense on a straight-line basis over the requisite service periods of the stock awards, which are generally the vesting periods. The Company recognized compensation costs of $1.0 million and $3.1 million during the three and nine months ended September 30, 2011, respectively, and $0.8 million and $3.2 million during the three and nine months ended September 30, 2010, respectively, for such awards. The total income tax benefit recognized in the statements of income for share-based compensation payments was $0.3 million and $1.2 million for the three and nine months ended September 30, 2011, respectively, and $0.3 million and $1.3 million for the three and nine months ended September 30, 2010, respectively.

Option Rights Plan – Under the LTIP, the Human Resources and Compensation Committee may grant non-qualified option rights to key employees and non-employee directors. No awards were granted in 2011 and 2010. Expense is recognized over the service period which is the vesting period. Unrecognized expense remaining at September 30, 2011 and 2010 for the options is $0.3 million and $1.6 million, respectively, and will be recognized through April 2012.

The following table sets forth the non-qualified option rights activity under the LTIP for the nine months ended September 30, 2011:

						Weighted-
				Weighted-		Average		Aggregate
	Number of			Average		Remaining		Intrinsic
	Shares			Exercise		Contractual		Value
	(In Thousands)			Price		Term		(In Thousands)

Outstanding at January 1, 2011		2,277		$	5.73		7.61	$	94,545

Granted		-			-
Exercised		(139	)		21.06
Canceled		(21	)		9.00

Outstanding at September 30, 2011		2,117		$	4.69		7.15	$	109,265

Fully vested options at:
September 30, 2011		1,173		$	5.62		7.02	$	59,441
Options expected to vest in the future at:
September 30, 2011		944		$	3.54		7.37	$	49,824

The total intrinsic value of options exercised during the three and nine months ended September 30, 2011 was $0.1 million and $6.3 million, respectively. The total intrinsic value of options exercised during the three and nine months ended September 30, 2010 was $2.0 million and $3.5 million, respectively.

Performance Shares – Performance share awards, which may take the form of performance shares or performance units, are granted to Company officers and certain key employees. No performance shares have been granted in 2011. In December 2010, a target number of performance units was granted.

These performance units, which will settle in Company shares, will vest over a three-year requisite service period following the grant date with 25% vesting on December 31, 2012 and the remaining 75% vesting on December 31, 2013. The grant-date fair value for the awards was based on the closing market price of the Company’s common shares on the date of grant. The number of performance units ultimately earned will depend upon the level of corporate performance against a pre-established target in 2011.

In March 2011, the 2008 grant of performance shares earned from January 1, 2008 through December 31, 2010 totaling 73,000 shares, net of forfeitures, vested at 200% of the target award (total of approximately 146,000 shares) with a total value to the recipients of approximately $3.5 million. In March 2010, 36,000 performance shares, net of forfeitures, from the 2007 grant earned from January 1, 2007 through December 31, 2009, and the 2008 grant of performance shares for a retired employee vested with a total value to the recipients of approximately $1.7 million.

The following table presents the status of the Company’s nonvested performance shares as of September 30, 2011 and any changes during the nine months ended September 30, 2011:

				Weighted-Average
	Shares			Grant-Date
Nonvested Shares	(In Thousands)			Fair Value

Nonvested at January 1, 2011		238		$	39.07
Granted		-			-
Vested		(73	)		27.95
Forfeited		(27	)		27.79
Nonvested at September 30, 2011		138		$	47.13

At September 30, 2011, the total compensation cost related to nonvested performance share awards not yet recognized is estimated at approximately $4.8 million, depending upon the Company’s performance against targets specified in the performance share agreement. This estimated compensation cost is expected to be recognized over the weighted average period of 1.9 years. Values of the performance shares earned will be recognized as compensation expense over the requisite service period. The total intrinsic value of vested and issued performance shares during the nine months ended September 30, 2011 and 2010 was $7.6 million and $1.0 million, respectively. As of September 30, 2011, the intrinsic value of the nonvested performance share awards was $7.8 million.

Restricted Stock Units – Under the LTIP, the Company may grant restricted stock units to key employees and non-employee directors. The grant-date fair value of the award is based on the closing market price of the Company’s common shares on the date of grant. In January 2011, non-employee directors were granted 9,330 shares with a grant-date fair value of $48.24 per share that fully vest on December 31, 2011. At September 30, 2011, the total compensation cost related to nonvested restricted stock unit awards not yet recognized is approximately $0.2 million, which is expected to be recognized on a straight-line basis over the vesting period of the restricted stock units.

The following table presents the status of the Company’s nonvested restricted stock units as of September 30, 2011 and changes during the nine months ended September 30, 2011:

				Weighted-Average
	Shares			Grant-Date
Nonvested Shares	(In Thousands)			Fair Value

Nonvested at January 1, 2011		64		$	4.55
Granted		9			48.24
Vested		(13	)		6.85
Forfeited		-			-
Nonvested at September 30, 2011		60		$	10.89

4.	VEHICLE DEPRECIATION AND LEASE CHARGES, NET

Vehicle depreciation and lease charges include the following (in thousands):

	Three Months						Nine Months
	Ended September 30,						Ended September 30,

	2011			2010			2011			2010

Depreciation of revenue-earning vehicles and other	$	80,667		$	95,723		$	247,112		$	271,274
Net gains from disposal of revenue-earning vehicles		(17,368	)		(9,991	)		(43,129	)		(63,214	)

	$	63,299		$	85,732		$	203,983		$	208,060

Average gain on risk vehicles:

	Three Months				Nine Months
	Ended September 30,				Ended September 30,

	2011		2010		2011		2010

Number of risk vehicles sold		15,441		15,816		30,787		49,242

Average gain on vehicles sold (per vehicle)	$	1,125	$	632	$	1,401	$	1,284

Components of vehicle depreciation per vehicle per month:

	Three Months						Nine Months
	Ended September 30,						Ended September 30,

	2011			2010			2011			2010

Average depreciable fleet (units)		113,719			109,129			110,125			104,749

Average depreciation rate	$	236		$	292		$	249		$	288
Average gain on vehicles sold		(50	)		(30	)		(43	)		(67	)

Vehicle depreciation and lease charges, net	$	186		$	262		$	206		$	221

Depreciation expense for risk vehicles, which constitute the majority of the Company’s fleet, is recorded on a straight-line basis over the life of the vehicle, based on the original acquisition cost, the projected residual value at the time of sale, and the estimated length of time the vehicle will be held in service. The Company’s vehicle depreciation rates will be periodically adjusted on a prospective basis when residual value assumptions change due to changes in used vehicle market conditions.

The estimation of residual values requires the Company to make assumptions regarding the expected age and mileage of the vehicle at the time of disposal. Additionally, residual value estimates must also take into consideration overall used vehicle market conditions at the time of sale, including the impact of seasonality on vehicle residuals. The difference in residual values assumed and the proceeds realized upon sale of the vehicle is recorded as a gain or loss on the sale of the vehicle, and is recorded as a component of net vehicle depreciation and lease charges in the condensed consolidated statements of income.

5.	EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is based on the combined weighted average number of common shares and dilutive potential common shares outstanding which include, where appropriate, the assumed exercise of options. In computing diluted earnings per share, the Company utilizes the treasury stock method.

The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted earnings per share (“EPS”) is shown in the following table (in thousands, except share and per share data):

	Three Months				Nine Months
	Ended September 30,				Ended September 30,

	2011		2010		2011		2010

Net income	$	66,621	$	49,165	$	125,649	$	118,720

Basic EPS:
Weighted-average common shares		28,958,718		28,644,859		28,872,747		28,592,794

Basic EPS	$	2.30	$	1.72	$	4.35	$	4.15

Diluted EPS:
Weighted-average common shares		28,958,718		28,644,859		28,872,747		28,592,794

Shares contingently issuable:
Stock options		1,964,321		1,227,828		1,984,419		1,224,370
Performance awards and non-vested shares		113,734		174,926		90,581		121,816
Employee compensation shares deferred		46,604		49,061		48,440		49,440
Director compensation shares deferred		221,452		222,802		220,554		221,042

Shares applicable to diluted		31,304,829		30,319,476		31,216,741		30,209,462

Diluted EPS	$	2.13	$	1.62	$	4.03	$	3.93

For the three and nine months ended September 30, 2011 and 2010, all options to purchase shares of common stock were included in the computation of diluted earnings per share because no exercise price was greater than the average market price of the common shares.

Although there have been no significant equity grants since 2010, shares included in the diluted earnings per share calculation increased on a year-over-year basis for both the three and nine months ended September 30, 2011. The Company uses the treasury stock method to determine the denominator used in the diluted earnings per share calculation. To derive the denominator, the number of outstanding options is reduced by the number of shares that would be repurchased from assumed proceeds of certain defined items including the exercise price of the option and the excess tax benefit that would result from the assumed exercise of the option. However, the excess tax benefit component is included only if the assumed tax benefit would decrease the Company’s current taxes payable. Since the Company does not expect to be a taxpayer for federal income tax purposes in 2011, it does not benefit from the tax deduction related to the assumed option exercises for purposes of the diluted share calculation as it did in 2010; thus, resulting in an increase in the dilutive earnings per share denominator of approximately 800,000 shares. When the Company becomes a taxpayer in the future, the tax benefit will be incorporated into the diluted share calculation and the shares included in the diluted earnings per share calculation will be reduced by the shares repurchased from the assumed proceeds; however, other factors, such as the Company’s stock price, could impact the diluted earnings per share calculation.

6.	RECEIVABLES

Receivables consist of the following (in thousands):

	September 30,			December 31,
	2011			2010

Trade accounts receivable and other	$	68,667		$	68,528
Vehicle manufacturer receivables		28,125			4,543
Car sales receivable		5,723			1,100
		102,515			74,171
Less: Allowance for doubtful accounts		(2,876	)		(4,715	)
	$	99,639		$	69,456

Trade accounts receivable and other include primarily amounts due from rental customers, franchisees and tour operators arising from billings under standard credit terms for services provided in the normal course of business.

Vehicle manufacturer receivables include primarily amounts due under guaranteed residual, buyback and Non-Program Vehicle (hereinafter defined) incentive programs, which are paid according to contract terms and are generally received within 60 days.

Car sales receivable include primarily amounts due from car sale auctions for the sale of both Program Vehicles and Non-Program Vehicles. Vehicles purchased by vehicle rental companies under programs where either the rate of depreciation or the residual value is guaranteed by the manufacturer are referred to as “Program Vehicles.” Vehicles not purchased under these programs and for which rental companies therefore bear residual value risk are referred to as “Non-Program Vehicles” or “risk vehicles.”

Allowance for doubtful accounts represents potentially uncollectible amounts owed to the Company from franchisees, tour operators, corporate account customers and others.

7.	DEBT AND OTHER OBLIGATIONS

Debt and other obligations as of September 30, 2011 and December 31, 2010 consist of the following (in thousands):

		September 30,			December 31,
		2011			2010

Vehicle debt and other obligations
Asset-backed medium-term notes:
Series 2011-1 notes (matures February 2015)	$	500,000		$	-
Series 2007-1 notes (matures July 2012)		500,000			500,000
Series 2006-1 notes (matured May 2011)		-			500,000
		1,000,000			1,000,000
Discounts on asset-backed medium-term notes		(49	)		-
Asset-backed medium-term notes, net of discount		999,951			1,000,000

Series 2010-1 variable funding note (matures September 2012)		-			200,000
Series 2010-3 variable funding note (matures December 2013)		315,000			-
CAD Series 2010-1 Note (Canadian fleet financing)		-			49,118
Total vehicle debt and other obligations		1,314,951			1,249,118

Non-vehicle debt
Term Loan		-			148,125
Total non-vehicle debt		-			148,125

Total debt and other obligations	$	1,314,951		$	1,397,243

Asset-Backed Medium-Term Notes

The Series 2006-1 notes began scheduled amortization in December 2010 and were paid in full in May 2011.

The Series 2011-1 notes were issued on July 28, 2011, comprised of $420 million principal amount of Series 2011-1 Class A Notes at a fixed interest rate of 2.51% and $80 million principal amount of Series 2011-1 Class B Notes at a fixed interest rate of 4.38%. On a blended basis, the average annual coupon on the combined $500 million principal amount of the notes is approximately 2.81%. The notes will be repaid monthly over a six-month period, beginning in September 2014, with the final payment in February 2015.

The Series 2007-1 notes will begin scheduled amortization in February 2012, and will amortize over a six-month period. The Series 2007-1 notes are insured by Financial Guaranty Insurance Company (“FGIC”). The scheduled amortization period for the Series 2007-1 notes may be accelerated under certain circumstances, including an event of bankruptcy with respect to the monoline or bond insurer (the “Monoline”). In the event of acceleration, amortization is required at the earliest of (i) the sale of the vehicle financed under the medium-term note program, (ii) three years from the original invoice date of that vehicle, or (iii) the final maturity date of the medium-term notes. The Series 2007-1 notes had an interest rate of 5.16% at September 30, 2011.

Variable Funding Notes

The Series 2010-1 Variable Funding Note (“VFN”) of $200 million and the Series 2010-2 VFN of $300 million were both undrawn at September 30, 2011. As a result of the renewal of the Series 2010-3 VFN (see below) and the issuance of the Series 2011-2 notes (see Note 16 for further discussion), these facilities were subsequently terminated in October of 2011.

On September 29, 2011, RCFC renewed the Series 2010-3 VFN, increasing the capacity to $600 million from $450 million, and the revolving period under the facility was extended to two years from the previous 364-day structure. The facility bears interest at a spread of 130 basis points above each funding institution’s cost of funds, which may be based on either the weighted average commercial paper rate, a floating one-month LIBOR rate or a Eurodollar rate. The Series 2010-3 VFN had $315 million drawn at September 30, 2011. At the end of the revolving period, the then-outstanding principal amount of the Series 2010-3 VFN will be repaid monthly over a three-month period, beginning in October 2013, with the final payment in December 2013. The Series 2010-3 VFN had an interest rate of 1.57% at September 30, 2011. The 2010-3 VFN requires compliance with a maximum leverage ratio of 2.25 to 1.00 and a minimum interest coverage ratio of 2.00 to 1.00, consistent with the terms of the Company’s Senior Secured Credit Facilities.

Senior Secured Credit Facilities

On February 9, 2011, the Company and the requisite percentage of the lenders under the Company’s Senior Secured Credit Facilities entered into an amendment (the “Amendment”), which reinstated the Company’s ability to borrow under the revolving credit facility (the “Revolving Credit Facility”) at its capacity of $231.3 million. The Company had letters of credit outstanding under the Revolving Credit Facility of $118.7 million for U.S. enhancement and $54.7 million in general purpose enhancements, with remaining available capacity of $57.9 million at September 30, 2011. Additionally, the Company is no longer required to maintain a minimum adjusted tangible net worth of $150 million and a minimum of $100 million of cash and cash equivalents. The Amendment replaced the foregoing covenants with a maximum leverage ratio of 2.25 to 1.00 and a minimum interest coverage ratio of 2.00 to 1.00.

In addition, the Amendment removed certain limitations relating to the issuance of enhancement letters of credit supporting asset-backed notes issued by RCFC. The Amendment eliminated events of default resulting from amortization events under certain series of RCFC’s outstanding asset-backed notes to the extent resulting from bankruptcy events with respect to the related Monoline. The Amendment also removed restrictions on allocation of capital spending to allow for certain franchise acquisitions and modified the language to permit dividends and share repurchases.

On September 23, 2011, the Company and the requisite percentage of the lenders under the Company’s Senior Secured Credit Facilities entered into an additional amendment, which amended the aggregate amount of all dividends, share repurchases and similar restricted payments permitted to be made by the Company to increase to $300 million, plus 50% of cumulative adjusted net income (or minus 100% of cumulative adjusted net loss, as applicable) for the period beginning January 1, 2011, through the last day of the quarter immediately preceding the restricted payment. This amendment also requires the Company to have a minimum of $100 million of unrestricted cash and/or availability under the Senior Secured Credit Facilities after giving effect to any such restricted payments, and it cannot borrow under the Revolving Credit Facility in order to fund such payments.

In March and June 2011, the Company made its minimum quarterly principal payments of $2.5 million under the term loan (the “Term Loan”). On August 31, 2011, the Company repaid the outstanding balance of $143.1 million under the Term Loan and terminated the Term Loan portion of its Senior Secured Credit Facilities.

Canadian Fleet Financing

On April 18, 2011, due to the Company’s excess cash position and the cost differential between the interest rate on its Canadian fleet financing and interest rates earned on investment of excess cash, the Company fully repaid the outstanding balance of CAD $54.0 million (US $56.0 million) and terminated the CAD Series 2010 Program. The Company currently plans to fund any future Canadian fleet needs with cash on hand and cash generated from operations. Direct investments in the Canadian fleet funded from cash and cash equivalents totaled CAD $92.1 million (US $87.7 million) as of September 30, 2011.

Covenant Compliance

The Company was in compliance with all covenants under its financing arrangements as of September 30, 2011.

8.	DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to market risks, such as changes in interest rates. Consequently, the Company manages the financial exposure as part of its risk management program by striving to reduce the potentially adverse effects that the volatility of the financial markets may have on the Company��s operating results. The Company has used interest rate swap agreements, for each related asset-backed medium-term note issuance in 2006 and 2007, to effectively convert variable interest rates to fixed interest rates. These swaps have termination dates through July 2012. The Company has also used interest rate cap agreements for its Series 2010-1 VFN, Series 2010-2 VFN and Series 2010-3 VFN, to effectively limit the variable interest rate on a total of $1.1 billion in asset-backed VFNs. These caps have termination dates through December 2013.

The fair value of derivatives outstanding at September 30, 2011 and December 31, 2010 are as follows (in thousands):

	Fair Value of Derivative Instruments

	Asset Derivatives						Liability Derivatives
	September 30,			December 31,			September 30,			December 31,
	2011			2010			2011			2010
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Interest rate contracts	Prepaid expenses and other assets	$	-	Prepaid expenses and other assets	$	861	Accrued liabilities	$	14,424	Accrued liabilities	$	31,254

Derivatives not designated as hedging instruments
Interest rate contracts	Prepaid expenses and other assets	$	555	Prepaid expenses and other assets	$	494	Accrued liabilities	$	-	Accrued liabilities	$	5,634


Total derivatives		$	555		$	1,355		$	14,424		$	36,888

The interest rate swap agreements related to the Series 2006-1 notes and the interest rate cap agreements related to the Series 2010-1 VFN, the Series 2010-2 VFN and the Series 2010-3 VFN do not qualify for hedge accounting treatment. The (gain) loss recognized in income on derivatives not designated as hedging instruments for the three and nine months ended September 30, 2011 and 2010 is as follows (in thousands):

	Amount of (Gain) or Loss Recognized in Income on Derivative											Location of (Gain) or Loss Recognized in Income on Derivative
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
Derivatives Not Designated as Hedging Instruments	2011		2010			2011			2010
												Net (increase) decrease in
Interest rate contracts	$	523	$	(6,464	)	$	(3,367	)	$	(21,338	)	fair value of derivatives

The interest rate swap agreement entered into in May 2007 related to the Series 2007-1 notes (“2007 Swap”) constitutes a cash flow hedge and satisfies the criteria for hedge accounting under the “long-haul” method.

The amount of gain (loss), net of tax and reclassification, recognized on the derivative in other comprehensive income (loss) (“OCI”) and the amount of the gain (loss) reclassified from Accumulated OCI (“AOCI”) into income (loss) for the three and nine months ended September 30, 2011 and 2010 are as follows (in thousands):

	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)				Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)						Location of (Gain) or Loss Reclassified from AOCI in Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	2011		2010		2011			2010

Three Months Ended
September 30,											Interest expense, net of
Interest rate contracts	$	3,591	$	1,211	$	(3,572	)	$	(3,602	)	interest income


Nine Months Ended
September 30,											Interest expense, net of
Interest rate contracts	$	10,288	$	1,695	$	(10,654	)	$	(10,540	)	interest income

At September 30, 2011, the Company’s interest rate contract related to the 2007 Swap was effectively hedged, and no ineffectiveness was recorded in income. Based on projected market interest rates, the Company estimates that approximately $9 million of net deferred loss related to the 2007 Swap will be reclassified into earnings within the next 12 months. Additionally, $0.4 million, net of tax, was reclassified from AOCI related to the discontinuance of a cash flow hedge during the nine months ended September 30, 2011.

9.	FAIR VALUE MEASUREMENTS

Financial instruments are presented at fair value in the Company’s balance sheets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. These categories include (in descending order of priority): Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following tables show assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010 on the Company’s balance sheet, and the input categories associated with those assets and liabilities:

				Fair Value Measurements at Reporting Date Using
	Total Fair			Quoted Prices in		Significant Other			Significant
(in thousands)	Value Assets			Active Markets for		Observable			Unobservable
	(Liabilities)			Identical Assets		Inputs			Inputs
Description	at 9/30/11			(Level 1)		(Level 2)			(Level 3)

Derivative Assets	$	555		$	-	$	555		$	-
Derivative Liabilities		(14,424	)		-		(14,424	)		-
Deferred Compensation Plan Assets (a)		4,772			4,772		-			-

Total	$	(9,097	)	$	4,772	$	(13,869	)	$	-

				Fair Value Measurements at Reporting Date Using
	Total Fair			Quoted Prices in		Significant Other			Significant
(in thousands)	Value Assets			Active Markets for		Observable			Unobservable
	(Liabilities)			Identical Assets		Inputs			Inputs
Description	at 12/31/10			(Level 1)		(Level 2)			(Level 3)

Derivative Assets	$	1,355		$	-	$	1,355		$	-
Derivative Liabilities		(36,888	)		-		(36,888	)		-
Marketable Securities (available for sale)		169			169		-			-
Deferred Compensation Plan Assets (a)(b)		3,916			3,916		-			-

Total	$	(31,448	)	$	4,085	$	(35,533	)	$	-

(a)

Deferred Compensation Plan Assets consist primarily of equity securites. The Company also has an offsetting liability related to the Deferred Compensation Plan, which is not disclosed in the table as it is not independently measured at fair value, but rather set to equal fair value of the assets held in the related rabbi trust.

(b)	Certain reclassifications have been made to the 2010 financial information to conform to the classification used in 2011.

The fair value of derivative assets and liabilities, consisting primarily of interest rate swaps and caps as discussed above, is calculated using proprietary models utilizing observable inputs, as well as future assumptions related to interest rates, credit risk and other variables. These calculations are performed by the financial institutions that are counterparties to the applicable swap and cap agreements and reported to the Company on a monthly basis. The Company uses these reported fair values to adjust the asset or liability as appropriate. The Company evaluates the reasonableness of the calculations by comparing similar calculations from other counterparties for the applicable period. Deferred compensation plan assets consist of publicly traded securities and are valued in accordance with market quotations. There were no transfers into or out of Level 1 or Level 2 measurements for the nine months ended September 30, 2011 or the 12 months ended December 31, 2010. The Company had no Level 3 financial instruments at any time during the nine months ended September 30, 2011 or the 12 months ended December 31, 2010.

The following estimated fair values of financial instruments have been determined by the Company using available market information and valuation methodologies.

Cash and Cash Equivalents, Cash and Cash Equivalents – Required Minimum Balance, Restricted Cash and Investments, Receivables, Accounts Payable, Accrued Liabilities and Vehicle Insurance Reserves – The carrying amounts of these items are a reasonable estimate of their fair value. The Company maintains its cash and cash equivalents in accounts that may not be federally insured. The Company has not experienced any losses in such accounts and believes it is not exposed to significant credit risk.

Letters of Credit and Surety Bonds – The letters of credit and surety bonds of $177.3 million and $47.1 million, respectively, have no fair value as they support the Company's corporate operations and are not anticipated to be drawn upon.

Debt and Other Obligations – The fair values of the asset-backed medium-term notes were developed using a valuation model that utilizes current market and industry conditions, assumptions related to the Monolines providing financial guaranty policies on those notes and the limited market liquidity for such notes. Additionally, the fair value of the Term Loan was similarly developed using a valuation model and current market conditions.

The following tables provide information about the Company’s market sensitive financial instruments valued at September 30, 2011 and December 31, 2010:

Debt and other obligations	Carrying		Fair Value
at September 30, 2011	Value		at 9/30/11
(in thousands)

Debt:

Vehicle debt and obligations-floating rates (1)	$	815,000	$	806,406

Vehicle debt and obligations-fixed rates	$	500,000	$	496,851

(1)	Includes the $500 million Series 2007-1 notes swapped from floating interest rates to fixed interest rates and $315 million of the Series 2010-3 VFN. The fair value excludes the impact of the related interest rate swap and caps.

Debt and other obligations	Carrying		Fair Value
at December 31, 2010	Value		at 12/31/10
(in thousands)

Debt:

Vehicle debt and obligations-floating rates (2)	$	1,200,000	$	1,178,875

Vehicle debt and obligations-Canadian dollar denominated	$	49,118	$	49,118

Non-vehicle debt - Term Loan	$	148,125	$	146,459

(2)	Includes $500 million relating to the Series 2006-1 notes, the $500 million Series 2007-1 notes swapped from floating interest rates to fixed interest rates, and the $200 million Series 2010-1 VFN. The fair value excludes the impact of the related interest rate swaps and cap.

10.	COMPREHENSIVE INCOME

Comprehensive income is comprised of the following (in thousands):

	Three Months					Nine Months
	Ended September 30,					Ended September 30,

	2011			2010		2011			2010

Net income	$	66,621		$	49,165	$	125,649		$	118,720

Interest rate swap and cap adjustment, net of tax		3,591			1,211		10,288			1,695
Foreign currency translation adjustment		(9,742	)		574		(8,579	)		403

Comprehensive income	$	60,470		$	50,950	$	127,358		$	120,818

For the three months ended September 30, 2011 and 2010, the Company recorded a deferred tax liability on cash flow hedges of $2.5 million and $0.8 million, respectively, and for the nine months ended September 30, 2011 and 2010, a deferred tax liability of $6.9 million and $0.4 million, respectively. These cash flow hedges are related to the derivatives used to manage the interest rate risk associated with the Company’s vehicle-related debt.

11.	INCOME TAXES

The Company has provided for income taxes in the U.S. and in Canada based on taxable income or loss and other tax attributes separately for each jurisdiction. The Company has established tax provisions separately for U.S. taxable income and Canadian losses, for which no income tax benefit was recorded. Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. A valuation allowance is recorded for deferred income tax assets when management determines it is more likely than not that such assets will not be realized.

The Company utilizes a like-kind exchange program for its vehicles whereby tax basis gains on disposal of eligible revenue-earning vehicles are deferred for purposes of U.S. federal and state income tax (the “Like-Kind Exchange Program”). To qualify for Like-Kind Exchange Program treatment, the Company exchanges (through a qualified intermediary) vehicles being disposed of with vehicles being purchased allowing the Company to carry-over the tax basis of vehicles sold to replacement vehicles, thereby deferring taxable gains from vehicle dispositions. In addition, the Company has historically elected to utilize accelerated or “bonus” depreciation methods on its vehicle inventories in order to defer its cash liability for U.S. federal and state income tax purposes.

In September 2010, Congress passed and the President signed into law the Small Business Jobs and Credit Act of 2010 (the “Small Business Act”), which extended 50% bonus depreciation allowances for assets placed in service in 2010, retroactively to the first of the year. In December 2010, Congress passed and the President signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Tax Relief Act”), which increased the bonus depreciation allowance to 100% for assets placed in service from September 9, 2010 through December 31, 2011, as well as provided for 50% bonus depreciation for assets placed in service in 2012. During the first and third quarters of 2011, the Company received federal tax refunds of $49.8 million and $0.2 million, respectively, based on overpayments of estimated taxes made in 2010, as a result of the enactment of the Small Business and Tax Relief Acts. The Company determined during the second quarter, based on changes in estimates, available at that time, that a portion of the refund should be repaid and the Company paid $6.5 million in July 2011. Subsequent revisions in estimates developed during the third quarter resulted in reductions to the tax liability exceeding the July payment and producing an additional refund due of $8.8 million, which is expected to be received in the fourth quarter of 2011. The Company’s ability to continue to defer the reversal of prior period tax deferrals will depend on a number of factors, including the size of the Company’s fleet, as well as the availability of accelerated depreciation methods in future years. Accordingly, the Company may make material cash federal income tax payments in future periods.

For the three and nine months ended September 30, 2011, the overall effective tax rate of 37.1% and 39.1%, respectively, and for the three and nine months ended September 30, 2010, the overall effective tax rate of 36.7% and 39.0%, respectively, differed from the U.S. statutory federal income tax rate due primarily to state and local taxes and losses relating to DTG Canada for which no benefit was recorded due to full valuation allowance.

As of September 30, 2011, the Company had no material liability for unrecognized tax benefits. There are no material tax positions for which it is reasonably possible that unrecognized tax benefits will significantly change in the 12 months subsequent to September 30, 2011.

The Company files income tax returns in the U.S. federal and various state, local and foreign jurisdictions. In the Company’s significant tax jurisdictions, the tax years 2008 and later are subject to examination by U.S. federal taxing authorities and the tax years 2006 and later are subject to examination by state and foreign taxing authorities.

The Company accrues interest and penalties on underpayment of income taxes related to unrecognized tax benefits as a component of income tax expense in the condensed consolidated statements of income. No material amounts were recognized for interest and penalties during the three and nine months ended September 30, 2011 and 2010.

12.	SHARE REPURCHASE PROGRAM

On September 26, 2011, the Company announced that its Board of Directors had increased the authorization of the share repurchase program previously announced on February 24, 2011 of up to $100 million to up to $400 million. The share repurchase program is discretionary and has no expiration date. Subject to applicable law, the Company may repurchase shares through forward stock repurchase agreements, accelerated stock buyback programs, directly in the open market, in privately negotiated transactions, or pursuant to derivative instruments or plans complying with SEC Rule 10b5-1, among other types of transactions and arrangements. Additionally, share repurchases will be subject to applicable limitations under the Senior Secured Credit Facilities, which as of September 30, 2011, permitted share repurchases totaling approximately $362 million (see Note 7 for further discussion). The Company plans to complete share repurchases of up to $100 million per quarter over the course of the next four quarters. No shares have been repurchased under the share repurchase program as of September 30, 2011. The share repurchase program may be suspended or discontinued at any time.

13.	COMMITMENTS AND CONTINGENCIES

There have been no material changes to the Commitments and Contingencies Note 15 in Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, with the exception of the following:

Vehicle Insurance Reserves

The Company records reserves for its public liability and property damage exposure using actuarially-based loss estimates, which are updated semi-annually in June and December of each year. In June 2011, the Company began semi-annual updates for supplemental liability insurance, as such reserves had been previously updated on an annual basis in December. As a result of favorable overall claims loss development, the Company recorded favorable insurance reserve adjustments, which effectively represents revision to previous estimates of vehicle insurance charges, of $10.6 million for the nine months ended September 30, 2011. No reserve adjustment was recorded for the nine months ended September 30, 2010, as favorability in claims development was offset with an unfavorable judgment on a vicarious liability claim in 2010.

Other

On April 4, 2011, the Company and HP Enterprise Services, LLC (“HP”) entered into a three and one-half year data processing service agreement (the “Service Agreement”) totaling approximately $72 million. The Service Agreement includes early termination provisions, which allow the Company to terminate the Service Agreement or portions of the Service Agreement for convenience and without cause by providing HP at least 120 days prior written notice of the Company’s intent to terminate and paying a termination fee to HP on the termination date. Likewise, the Company may terminate the Service Agreement in the event of a change of control of the Company by providing HP with 60 days prior written notice of its intent to terminate and paying a termination fee to HP.

Contingencies

For a detailed description of certain legal proceedings see Note 15 of the Form 10-K referenced above.

The following recent development pertaining to a legal proceeding described in the Company’s Form 10-K is furnished on a supplemental basis:

On October 18, 2011, plaintiffs in the consolidated class action complaint filed in Delaware Chancery Court, Consolidated Case No. 5458-VCS, sought permission to amend their pleadings to assert additional claims that members of the Company’s board of directors (the “Board”) breached their fiduciary duties concerning the following matters: (1) the Board’s response to a merger proposal by Avis Budget in September, 2010; (2) the Board’s use of defensive measures, including the adoption of a poison pill, in response to the Exchange Offer made by Hertz; (3) the Board’s response to the failure of Hertz to submit an improved final offer meeting certain Board criteria by October 10, 2011; and (4) the Board’s alleged failure to make full material disclosures to the Company’s stockholders concerning the Hertz offer, the Company’s stand-alone plan, and the Company’s negotiations with Hertz regarding a business combination. The court has not ruled on the plaintiffs’ request to amend. On November 1, 2011, the plaintiffs advised the court that the parties have agreed to stay further activity pending the outcome of the Hertz antitrust review process.

Aside from the above mentioned, none of the other legal proceedings described in the Company’s Form 10-K have experienced material changes.

Various legal actions, claims and governmental inquiries and proceedings have been in the past, or may be in the future, asserted or instituted against the Company, including other purported class actions or proceedings relating to the Hertz transaction terminated in October 2010 or a potential acquisition transaction, and some that may demand large monetary damages or other relief which could result in significant expenditures. Litigation is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. The Company is also subject to potential liability related to environmental matters. The Company establishes reserves for litigation and environmental matters when the loss is probable and reasonably estimable. It is reasonably possible that the final resolution of some of these matters may require the Company to make expenditures, in excess of established reserves, over an extended period of time and in a range of amounts that cannot be reasonably estimated. The term “reasonably possible” is used herein to mean that the chance of a future transaction or event occurring is more than remote but less than probable. Although the final resolution of any such matters could have a material effect on the Company’s consolidated operating results for the particular reporting period in which an adjustment of the estimated liability is recorded, the Company believes that any resulting liability should not materially affect its business or consolidated financial position.

14.	NEW ACCOUNTING STANDARDS

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) ASU 2010-06, “Fair Value Measurements and Disclosures (ASC Topic 820): Improving Disclosures about Fair Value Measurements,” which amends ASC Subtopic 820, “Fair Value Measurements and Disclosures” (“ASU 2010-06”) to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements.

ASU 2010-06 also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The Company adopted the provisions of ASU 2010-06 regarding disclosures about transfers into and out of Levels 1 and 2 as required on January 1, 2010 (see Note 9 for required disclosure) and adopted the remaining provisions of ASU 2010-06 regarding separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements as required on January 1, 2011. The adoption of this latest provision had no impact on the Company’s financial statements as the Company has no Level 3 measurements.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011-04”), which amends U.S. GAAP to converge U.S. GAAP and International Financial Reporting Standards (“IFRS”) by changing the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011; early adoption is not permitted. The Company plans to adopt ASU 2011-04 on January 1, 2012, as required, but does not believe this guidance will have a significant impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”), which amends U.S. GAAP to require entities to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented (the FASB subsequently effectively deferred the presentation requirements for reclassification adjustments during its October 2011 board meeting, pending the drafting and approval of a proposed update to supersede the applicable paragraphs of pending content in Topic 220). ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company plans to adopt ASU 2011-05 on January 1, 2012, as required.

15.	PROPOSED ACQUISITION AND RELATED MATTERS

As previously disclosed, in late February, the Company submitted its certification of substantial compliance with the Federal Trade Commission’s (“FTC”) Second Request relating to a potential acquisition of the Company by Avis Budget.

On May 9, 2011, Hertz announced its plans to commence an exchange offer to acquire the Company. On May 24, 2011, HDTMS, Inc., a wholly owned subsidiary of Hertz, commenced an exchange offer to exchange each of the issued and outstanding shares of the Company’s common stock for (i) $57.60 in cash, without interest and less any required withholding taxes, and (ii) 0.8546 shares of common stock, par value $0.01 per share, of Hertz common stock (the “Exchange Offer”). The Exchange Offer had an expiration date of July 8, 2011; however, Hertz extended the Exchange Offer through November 1, 2011. On October 27, 2011, Hertz announced that it was withdrawing its Exchange Offer for all outstanding shares of the Company, in light of the Company's plan to commence its announced share repurchase program and current market conditions. However, Hertz noted that they remain interested in acquiring the Company and remain engaged with the FTC to secure antitrust clearance for a proposed transaction.

On August 21, 2011, the Company issued a letter advising Hertz and Avis Budget of the Company's intention to solicit for submission in early October 2011 best and final definitive proposals regarding a potential business combination. In its letter, the Company stated that any proposal that did not eliminate the antitrust regulatory risk of the transaction for its shareholders would not likely be acceptable. In conjunction with the Company’s request for final proposals regarding a potential business combination on September 14, 2011, Avis Budget announced that it would not participate in a bid to buy the Company, citing current market conditions.

As of October 10, 2011, the Company had not received any proposals meeting this criterion and announced that it has formally concluded its process to solicit definitive proposals regarding a potential business combination. Consequently, the Company has terminated its solicitation process and will continue to execute its current stand-alone plan.

On May 18, 2011, the Company adopted a shareholder rights plan (the “Rights Plan”) under which the Company’s shareholders will receive rights to purchase shares of a new series of preferred stock in certain circumstances. Under the provisions of the Rights Plan, which has a term of one year, the rights will be exercisable if a person or group, without the Company’s approval, acquires 20% or more of the Company’s common stock or announces a tender offer which results in the ownership of 20% or more of the Company’s common stock. The rights also will be exercisable if a person or group that already owns 20% or more of the Company’s common stock, without the Company’s approval, acquires any additional shares. If the rights become exercisable, all rights holders (other than the person triggering the rights) will be entitled to acquire the Company’s common stock at a 50% discount.

16.	SUBSEQUENT EVENTS

In preparing the accompanying condensed consolidated financial statements, the Company has reviewed events that have occurred after September 30, 2011 through the issuance of the financial statements. The Company noted no reportable subsequent events other than the subsequent events noted below and in Notes 7 and 15.

On October 26, 2011, RCFC issued $400 million of asset-backed medium-term notes (the “Series 2011-2 notes”), which will be repaid monthly over a six-month period, beginning in December 2014, with an expected final maturity date of May 2015, at a fixed interest rate of 3.21%. The Series 2011-2 notes require compliance with a maximum leverage ratio of 2.25 to 1.00 and a minimum interest coverage ratio of 2.00 to 1.00, consistent with the terms of the Company’s Senior Secured Credit Facilities. In conjunction with the Series 2011-2 notes, the $300 million Series 2010-2 VFN was terminated.

*******

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Table of Contents

Results of Operations

The following table sets forth certain selected operating data of the Company:

	Three Months							Nine Months
	Ended September 30,							Ended September 30,
					Percentage							Percentage
U.S. and Canada	2011		2010		Change			2011		2010		Change


Vehicle Rental Data:

Average number of vehicles operated		112,665		108,042		4.3%			109,168		103,781		5.2%
Number of rental days		8,690,838		8,346,616		4.1%			23,930,099		23,160,428		3.3%
Vehicle utilization		83.9%		84.0%	(0.1) p.p.				80.3%		81.7%	(1.4) p.p.
Average revenue per day	$	50.12	$	50.97		(1.7%	)	$	47.89	$	49.14		(2.5%	)
Monthly average revenue per vehicle	$	1,289	$	1,313		(1.8%	)	$	1,166	$	1,218		(4.3%	)
Average depreciable fleet		113,719		109,129		4.2%			110,125		104,749		5.1%
Monthly avg. depreciation (net) per vehicle	$	186	$	262		(29.0%	)	$	206	$	221		(6.8%	)

Use of Non-GAAP Measures For Measuring Results

Non-GAAP pretax income, non-GAAP net income and non-GAAP EPS exclude the impact of the (increase) decrease in fair value of derivatives and the impact of long-lived asset impairments, net of related tax impact (as applicable), from the reported GAAP measures and are further adjusted to exclude merger-related expenses. Due to volatility resulting from the mark-to-market treatment of the derivatives and the non-operating nature of the non-cash impairments and merger-related expenses, the Company believes these non-GAAP measures provide an important assessment of year-over-year operating results.

See the table below for a reconciliation of certain non-GAAP financial measures to the most directly comparable GAAP financial measure.

Reconciliation of reported GAAP pretax income per the
income statement to non-GAAP pretax income:
		Three Months					Nine Months
		Ended September 30,					Ended September 30,
		2011		2010			2011			2010
		(in thousands, except per share data)

Income before income taxes - as reported		$	105,886	$	77,672		$	206,243		$	194,774

(Increase) decrease in fair value of derivatives			523		(6,464	)		(3,367	)		(21,338	)

Long-lived asset impairment			-		703			-			942

Pretax income - non-GAAP		$	106,409	$	71,911		$	202,876		$	174,378

Merger-related expenses			-		11,937			4,600			20,459

Non-GAAP pretax income, excluding merger-related expenses		$	106,409	$	83,848		$	207,476		$	194,837

Reconciliation of reported GAAP net income per the
income statement to non-GAAP net income:

Net income - as reported		$	66,621	$	49,165		$	125,649		$	118,720

(Increase) decrease in fair value of derivatives, net of tax (a)			307		(3,791	)		(1,974	)		(12,513	)

Long-lived asset impairment, net of tax (b)			-		429			-			575

Net income - non-GAAP		$	66,928	$	45,803		$	123,675		$	106,782

Merger-related expenses, net of tax (c)			-		6,956			2,679			11,921

Non-GAAP net income, excluding merger-related expenses		$	66,928	$	52,759		$	126,354		$	118,703

Reconciliation of reported GAAP diluted earnings
per share ("EPS") to non-GAAP diluted EPS:

EPS, diluted - as reported		$	2.13	$	1.62		$	4.03		$	3.93

EPS impact of (increase) decrease in fair value of derivatives, net of tax			0.01		(0.13	)		(0.06	)		(0.41	)

EPS impact of long-lived asset impairment, net of tax			-		0.01			-			0.02

EPS, diluted - non-GAAP (d)		$	2.14	$	1.51		$	3.96		$	3.53

EPS impact of merger-related expenses, net of tax			-		0.23			0.09			0.39

Non-GAAP diluted EPS, excluding merger-related expenses (d)		$	2.14	$	1.74		$	4.05		$	3.93

(a)	The tax effect of the (increase) decrease in fair value of derivatives is calculated using the entity-specific, U.S. federal and blended state tax rate applicable to the derivative instruments which amounts are $216,000 and ($2,673,000) for the three months ended September 30, 2011 and 2010, respectively, and ($1,393,000) and ($8,825,000) for the nine months ended September 30, 2011 and 2010, respectively.

(b)	The tax effect of the long-lived asset impairment is calculated using the tax-deductible portion of the impairment and applying the entity-specific, U.S. federal and blended state tax rate which amounts are $274,000 and $367,000 for the three months and nine months ended September 30, 2010, respectively.

(c)	Merger-related expenses include legal, litigation, advisory and other fees related to a potential merger transaction. The tax effect of the merger-related expenses is calculated using the entity-specific, U.S. federal and blended state tax applicable to the merger-related expenses, which amounts are $4,981,000 for the three months ended September 30, 2010, and $1,921,000 and $8,538,000 for the nine months ended September 30, 2011 and 2010, respectively.

(d)	Since each category of EPS is computed independently for each period, total per share amounts may not equal the sum of the respective categories.

Corporate Adjusted EBITDA means earnings, excluding the impact of the (increase) decrease in fair value of derivatives, before non-vehicle interest expense, income taxes, non-vehicle depreciation, amortization, and certain other items as shown below. The Company believes Corporate Adjusted EBITDA is important as it provides investors with a supplemental measure of the Company's liquidity by adjusting earnings to exclude certain non-cash items, in addition to its relevance as a measure of operating performance. The items excluded from Corporate Adjusted EBITDA but included in the calculation of the Company’s reported net income are significant components of the accompanying condensed consolidated statements of income, and must be considered in performing a comprehensive assessment of overall financial performance. Corporate Adjusted EBITDA is not defined under GAAP and should not be considered as an alternative measure of the Company's net income, cash flow or liquidity. Corporate Adjusted EBITDA amounts presented may not be comparable to similar measures disclosed by other companies. See table below for a reconciliation of non-GAAP to GAAP results.


	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2011			2010			2011			2010
	(in thousands)						(in thousands)
Reconciliation of Net Income to
Corporate Adjusted EBITDA

Net income - as reported	$	66,621		$	49,165		$	125,649		$	118,720

(Increase) decrease in fair value of derivatives		523			(6,464	)		(3,367	)		(21,338	)
Non-vehicle interest expense		3,709			2,464			9,053			7,301
Income tax expense		39,265			28,507			80,594			76,054
Non-vehicle depreciation		4,786			4,782			14,559			15,108
Amortization		1,896			1,771			5,703			5,472
Non-cash stock incentives		987			842			3,124			3,254
Long-lived asset impairment		-			703			-			942
Other		(231	)		-			(243	)		(22	)

Corporate Adjusted EBITDA	$	117,556		$	81,770		$	235,072		$	205,491


Reconciliation of Corporate Adjusted EBITDA
to Cash Flows From Operating Activities

Corporate Adjusted EBITDA	$	117,556		$	81,770		$	235,072		$	205,491

Vehicle depreciation, net of gains/losses from disposal		63,290			85,723			203,956			208,018
Non-vehicle interest expense		(3,709	)		(2,464	)		(9,053	)		(7,301	)
Change in assets and liabilities and other		(5,800	)		13,765			28,509			(40,315	)
Net cash provided by operating activities (a)	$	171,337		$	178,794		$	458,484		$	365,893

Memo:
Net cash provided by / (used in) investing activites	$	41,421		$	(15,373	)	$	(326,408	)	$	(147,535	)
Net cash used in financing activities (a)	$	(169,358	)	$	(14,290	)	$	(95,756	)	$	(199,755	)

(a) Certain reclassifications have been made to the 2010 financial information to conform to the classifications used in 2011.

Three Months Ended September 30, 2011 Compared with Three Months Ended September 30, 2010

Operating Results

During the third quarter of 2011, the Company’s vehicle rental revenues increased, primarily due to a 4.1% increase in the number of rental days, partially offset by a 1.7% decrease in average revenue per day. Expenses for the third quarter of 2011 declined 7.3% compared to the third quarter of 2010, primarily due to improvements in net vehicle depreciation and lease charges and selling, general and administrative expenses, partially offset by increases in direct vehicle and operating expenses. Additionally, the change in the fair value of derivatives during the third quarter of 2011 was a decrease of $0.5 million, compared to an increase in the third quarter of 2010 of $6.5 million.

The Company had income before income taxes of $105.9 million for the third quarter of 2011, compared to income before income taxes of $77.7 million for the third quarter of 2010.

Revenues

	Three Months
	Ended September 30,				$ Increase/			% Increase/
	2011		2010		(decrease)			(decrease)
	(in millions)

Vehicle rentals	$	435.6	$	425.5	$	10.1			2.4%
Other		16.1		18.0		(1.9	)		(10.7%	)
Total revenues	$	451.7	$	443.5	$	8.2			1.8%

Vehicle rental metrics:
Number of rental days		8,690,838		8,346,616		344,222			4.1%
Average revenue per day		$50.12		$50.97	$	($0.85	)		(1.7%	)

Vehicle rental revenue for the third quarter of 2011 increased 2.4%. The Company experienced a 4.1% increase in rental days totaling $17.4 million, partially offset by a 1.7% decrease in average revenue per day totaling $7.3 million.

Other revenue decreased $1.9 million primarily due to a $1.5 million decrease in the market value of investments in the Company’s deferred compensation and retirement plans and a $0.4 million decrease in leasing revenue. The decline in market value of investments in the deferred compensation and retirement plans is fully offset in selling, general and administrative expenses.

Expenses

	Three Months
	Ended September 30,					$ Increase/			% Increase/
	2011		2010			(decrease)			(decrease)
	(in millions)

Direct vehicle and operating	$	214.5	$	204.2		$	10.3			5.1%
Vehicle depreciation and lease charges, net		63.3		85.7			(22.4	)		(26.2%	)
Selling, general and administrative (a)		47.9		59.4			(11.5	)		(19.4%	)
Interest expense, net of interest income		19.6		22.3			(2.7	)		(12.1%	)
Long-lived asset impairment		-		0.7			(0.7	)		(100.0%	)
Total expenses	$	345.3	$	372.3		$	(27.0	)		(7.3%	)

(Increase) decrease in fair value of derivatives	$	0.5	$	(6.5	)	$	7.0			108.1%

(a) Includes merger-related expenses of $11.9 million for the three months ended September 30, 2010.

Direct vehicle and operating expenses for the third quarter of 2011 increased $10.3 million primarily due to an increase in the average fleet operated during the period of 4.3%. As a percent of revenue, direct vehicle and operating expenses were 47.5% in the third quarter of 2011, compared to 46.0% in the third quarter of 2010.

The increase in direct vehicle and operating expenses in the third quarter of 2011 primarily resulted from the following:

Vehicle-related expenses increased $10.1 million, which included an increase in gasoline expense of $4.8 million and an increase in toll and ticket expense of $1.5 million. Increased sales of pre-paid fuel and toll road products are a focus area for the Company, and the majority of the increase in these expenses is recovered through customer revenue related to these products. Additionally, the Company experienced a $2.7 million increase in vehicle maintenance expense due to an increase in the rental fleet size and increased maintenance expense due to higher mileage vehicles in the fleet compared to 2010, and a $0.5 million increase in shuttling expense. All other vehicle-related expenses increased $0.6 million.

Ø	Discounts and commissions expense increased $0.8 million primarily due to increases in commissions paid to travel agents resulting from increased rental revenue.

Personnel expenses increased $0.4 million, primarily due to a $2.5 million increase in field employee salaries due to merit-based raises and a $0.4 million increase in incentive compensation primarily related to the timing of compensation-related accruals, partially offset by a $1.7 million decrease related to a decrease in the number of employees. All other personnel expenses decreased $0.8 million.

Ø	Vehicle insurance expenses decreased $0.7 million. This decrease resulted primarily from lower accrual rates in 2011 compared to 2010 due to favorable claims experience.

Ø	Communications and computer expenses decreased $0.3 million due to cost reduction initiatives.

Net vehicle depreciation and lease charges for the third quarter of 2011 decreased $22.4 million. As a percent of revenue, net vehicle depreciation and lease charges were 14.0% in the third quarter of 2011, compared to 19.3% in the third quarter of 2010.

The decrease in net vehicle depreciation and lease charges in the third quarter of 2011 primarily resulted from the following:

Ø	Vehicle depreciation expense decreased $15.0 million, primarily resulting from a 19.2% decrease in the average depreciation rate due to continued favorable used vehicle market conditions, partially offset by a 4.2% increase in the average depreciable fleet.

Net vehicle gains on disposal of risk vehicles (reductions to net vehicle depreciation and lease charges), which effectively represent revisions to previous estimates of vehicle depreciation charges by reducing vehicle depreciation and lease charges, increased $7.4 million from a $10.0 million gain in the third quarter of 2010 to a $17.4 million gain in the third quarter of 2011. This increase in gains on vehicle dispositions resulted from a higher average gain per unit in the third quarter of 2011 as compared to the third quarter of 2010 due to improved market conditions, partially offset by approximately 400 fewer units sold in the third quarter of 2011.

Selling, general and administrative expenses for the third quarter of 2011 decreased $11.5 million. As a percent of revenue, selling, general and administrative expenses were 10.6% in the third quarter of 2011, compared to 13.4% in the third quarter of 2010.

The decrease in selling, general and administrative expenses in the third quarter of 2011 primarily resulted from the following:

Ø	Merger-related costs decreased $11.9 million.

Personnel-related expenses decreased $0.4 million, primarily due to a $1.5 million decrease in the market value of the deferred compensation and retirement plans and a $0.2 million decrease in group insurance expense, partially offset by the timing of compensation-related accruals which increased by $1.2 million.

Ø	Other selling, general and administrative expenses increased $0.8 million primarily due to increases in sales and marketing expenses.

Net interest expense for the third quarter of 2011 decreased $2.7 million primarily due to lower average interest rates, partially offset by higher amortization of deferred financing costs and a write-off of deferred financing fees related to the Term Loan payoff during the third quarter of 2011. As a percent of revenue, net interest expense was 4.4% in the third quarter of 2011, compared to 5.0% in the third quarter of 2010.

Long-lived asset impairment expense decreased $0.7 million in 2011, due to write-offs of software no longer in use during the third quarter of 2010 with no corresponding write-offs in 2011.

The change in fair value of the Company’s derivative agreements was a decrease of $0.5 million for the third quarter of 2011 compared to an increase of $6.5 million for the third quarter of 2010, resulting in a quarter-over-quarter unfavorable change of $7.0 million.

Income tax expense for the third quarter of 2011 was $39.3 million, compared to $28.5 million for the third quarter of 2010. The effective income tax rate for the third quarter of 2011 was 37.1% compared to 36.7% for the third quarter of 2010. The effective income tax rates for the three months ended September 30, 2011 and 2010 were higher than the statutory rates principally due to state and local income taxes. Interim reporting requirements for applying separate, annual effective income tax rates to U.S. and Canadian operations, combined with the seasonal impact of Canadian operations, generally cause significant variations in the Company’s quarterly consolidated effective income tax rates.

Nine Months Ended September 30, 2011 Compared with Nine Months Ended September 30, 2010

Operating Results

During the nine months ended September 30, 2011, the Company’s vehicle rental revenues increased, primarily due to a 3.3% increase in the number of rental days, partially offset by a 2.5% decrease in average revenue per day. Expenses for the nine months ended September 30, 2011 declined 2.2% compared to the nine months ended September 30, 2010, primarily due to improvements in selling, general and administrative expenses, interest expense and net vehicle depreciation and lease charges, partially offset by increases in direct vehicle and operating expenses. Additionally, the Company experienced increases in the fair value of derivatives in the nine months ended September 30, 2011 and 2010 of $3.4 million and $21.3 million, respectively. The Company had income before income taxes of $206.2 million for the nine months ended September 30, 2011, compared to income before income taxes of $194.8 million for the nine months ended September 30, 2010.

Revenues

	Nine Months
	Ended September 30,				$ Increase/			% Increase/
	2011		2010		(decrease)			(decrease)
	(in millions)

Vehicle rentals	$	1,146.0	$	1,138.0	$	8.0			0.7%
Other		49.2		50.1		(0.9	)		(1.8%	)
Total revenues	$	1,195.2	$	1,188.1	$	7.1			0.6%

Vehicle rental metrics:
Number of rental days		23,930,099		23,160,428		769,671			3.3%
Average revenue per day		$47.89		$49.14		($1.25	)		(2.5%	)

Vehicle rental revenue for the nine months ended September 30, 2011 increased 0.7%. The Company experienced a 3.3% increase in rental days totaling $37.9 million, partially offset by a 2.5% decrease in average revenue per day totaling $29.9 million.

Other revenue decreased $0.9 million primarily due to a decrease in the market value of investments in the Company’s deferred compensation and retirement plans, which is fully offset in selling, general and administrative expenses.

Expenses

	Nine Months
	Ended September 30,						$ Increase/			% Increase/
	2011			2010			(decrease)			(decrease)
	(in millions)

Direct vehicle and operating	$	583.8		$	577.4		$	6.4			1.1%
Vehicle depreciation and lease charges, net		204.0			208.1			(4.1	)		(2.0%	)
Selling, general and administrative (a)		145.6			162.8			(17.2	)		(10.6%	)
Interest expense, net of interest income		58.9			65.4			(6.5	)		(9.9%	)
Long-lived asset impairment		-			0.9			(0.9	)		(100.0%	)
Total expenses	$	992.3		$	1,014.6		$	(22.3	)		(2.2%	)

(Increase) decrease in fair value of derivatives	$	(3.4	)	$	(21.3	)	$	17.9			84.2%

(a) Includes merger-related expenses of $4.6 million and $20.5 million, respectively.

Direct vehicle and operating expenses for the nine months ended September 30, 2011 increased $6.4 million primarily due to an increase in the average fleet operated during the period of 5.2%. As a percent of revenue, direct vehicle and operating expenses were 48.8% in the nine months ended September 30, 2011, compared to 48.6% in the nine months ended September 30, 2010.

The increase in direct vehicle and operating expenses in the nine months ended September 30, 2011 primarily resulted from the following:

Vehicle-related expenses increased $19.7 million, which included an increase in gasoline expense of $9.7 million and an increase in toll and ticket expense of $3.0 million. Increased sales of pre-paid fuel and toll road products are a focus area for the Company, and the majority of the increase in these expenses is recovered through customer revenue related to these products. Additionally, the Company experienced a $4.1 million increase in vehicle maintenance expense due to the increase in the rental fleet size and increased maintenance expense due to higher mileage vehicles in the fleet compared to 2010, a $1.9 million increase in shuttling expense and a $1.2 million increase in general excise and surcharge taxes. All other vehicle-related expenses decreased $0.2 million.

Ø	Discounts and commissions expense increased $0.8 million primarily due to increases in commissions paid to travel agents resulting from increased rental revenue.

Vehicle insurance expenses decreased $11.0 million, primarily due to a decrease in insurance reserves of $10.6 million for the nine months ended September 30, 2011, resulting from favorable claims developments and the corresponding revisions to future loss estimates. Changes in insurance reserves for the nine months ended September 30, 2010 were fully offset by an unfavorable judgment on a vicarious liability claim in 2010.

Personnel-related expenses decreased $1.3 million. The decrease was primarily due to a $2.6 million decrease related to a decrease in the number of employees, the timing of the vacation accrual, which decreased by $1.7 million, a $1.2 million decrease in group insurance expense due to favorable claims and lower number of personnel, and a $0.3 million decrease in incentive compensation expense due to the timing of compensation-related accruals, partially offset by a $4.9 million increase in field employee salaries due to merit-based raises.

Ø	Communications and computer expenses decreased $1.3 million due to cost reduction initiatives.

Net vehicle depreciation and lease charges for the nine months ended September 30, 2011 decreased $4.1 million. As a percent of revenue, net vehicle depreciation and lease charges were 17.1% in the nine months ended September 30, 2011, compared to 17.5% in the nine months ended September 30, 2010.

The decrease in net vehicle depreciation and lease charges in the nine months ended September 30, 2011 primarily resulted from the following:

Ø	Vehicle depreciation expense decreased $24.2 million, primarily resulting from a 13.5% decrease in the average depreciation rate due to continued favorable used vehicle market conditions, partially offset by a 5.1% increase in the average depreciable fleet.

Net vehicle gains on disposal of risk vehicles (reductions to net vehicle depreciation and lease charges), which effectively represent revisions to previous estimates of vehicle depreciation charges by reducing vehicle depreciation and lease charges, decreased $20.1 million from a $63.2 million gain in the nine months ended September 30, 2010 to a $43.1 million gain in the nine months ended September 30, 2011. This decrease in gains on vehicle dispositions resulted from approximately 18,500 fewer units sold in the nine months ended September 30, 2011, partially offset by a higher average gain per unit as compared to the nine months ended September 30, 2010.

Selling, general and administrative expenses for the nine months ended September 30, 2011 decreased $17.2 million. As a percent of revenue, selling, general and administrative expenses were 12.2% in the nine months ended September 30, 2011, compared to 13.7% in the nine months ended September 30, 2010.

The decrease in selling, general and administrative expenses in the nine months ended September 30, 2011 primarily resulted from the following:

Ø	Merger-related costs decreased $15.9 million.

Ø	Personnel-related expenses decreased $3.7 million, primarily due to the timing of compensation-related and vacation accruals, which decreased by $1.9 million and $1.2 million, respectively, and a $0.9 million decrease in the market value of the deferred compensation and retirement plans.

Ø	Loyalty programs and commission expenses increased $1.1 million primarily due to increased rental day volume.

Ø	Other selling, general and administrative expenses increased $1.3 million primarily due to increases in sales and marketing expenses.

Net interest expense for the nine months ended September 30, 2011 decreased $6.5 million primarily due to lower average vehicle debt and lower interest rates, partially offset by higher amortization of deferred financing costs and a write-off of deferred financing fees related to the Term Loan payoff during the third quarter of 2011. As a percent of revenue, net interest expense was 4.9% in the nine months ended September 30, 2011, compared to 5.5% in the nine months ended September 30, 2010.

Long-lived asset impairment expense decreased $0.9 million in 2011, due to write-offs of software no longer in use during the nine months ended September 30, 2010 with no corresponding write-offs in 2011.

The change in fair value of the Company’s derivative agreements was an increase of $3.4 million for the nine months ended September 30, 2011 compared to an increase of $21.3 million for the nine months ended September 30, 2010, resulting in a period-over-period unfavorable change of $17.9 million.

Income tax expense for the nine months ended September 30, 2011 was $80.6 million, compared to $76.1 million for the nine months ended September 30, 2010. The effective income tax rate for the nine months ended September 30, 2011 was 39.1%, compared to 39.0% for the nine months ended September 30, 2010. The effective income tax rates for the nine months ended September 30, 2011 and 2010 were higher than the statutory rates principally due to state and local income taxes and the full valuation allowance for the tax benefit of Canadian operating losses. Interim reporting requirements for applying separate, annual effective income tax rates to U.S. and Canadian operations, combined with the seasonal impact of Canadian operations, generally cause significant variations in the Company’s quarterly consolidated effective income tax rates.

Seasonality

The Company’s business is subject to seasonal variations in customer demand, with the summer vacation period representing the peak season for vehicle rentals. During the peak season, the Company increases its rental fleet and workforce to accommodate increased rental activity. As a result, any occurrence that disrupts travel patterns during the summer period could have a material adverse effect on the annual performance of the Company. The first and fourth quarters for the Company’s rental operations are generally the weakest, when there is limited leisure travel and a greater potential for adverse weather conditions. Many of the operating expenses such as rent, general insurance and administrative personnel are fixed and cannot be reduced during periods of decreased rental demand.

Outlook for 2011

The Company noted that it expects 1 to 2 percent rental revenue growth in the fourth quarter with growth in rental days offsetting a slight decline in revenue per day. The Company further noted that its full year 2011 fleet cost outlook of $215 - $225 per vehicle per month remains unchanged.

Based on the factors outlined above, the Company is currently targeting Corporate Adjusted EBITDA for the full year of 2011 to be within a range of $270 million to $290 million. This estimate excludes the impact of merger-related expenses incurred to date and that may be incurred during the remainder of 2011.

See below for the reconciliation of forecasted Corporate Adjusted EBITDA for the full year of 2011.

	Full Year
	2011			2010
	(in millions)
Reconciliation of Pretax Income to	(forecasted)			(actual)
Corporate Adjusted EBITDA

Pretax income (net income plus income tax expense)		$226 - $246		$	221

(Increase) decrease in fair value of derivatives (2011 amount is YTD September 2011)		(3	)		(29	)
Non-vehicle interest expense		11			10
Non-vehicle depreciation		19			20
Amortization		8			7
Non-cash stock incentives		4			5
Long-lived asset impairment		-			1
Merger-related expenses (a)		5			23

Corporate Adjusted EBITDA, excluding merger-related expenses		$270-$290		$	258

(a) Merger-related expenses include legal, litigation, advisory and other fees related to a potential merger transaction.
Full year 2011 includes $4.6 million of merger-related expenses through September 30, 2011.

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. The Company uses both cash and letters of credit to support asset-backed vehicle financing programs. The Company also uses letters of credit or insurance bonds to secure certain commitments related to airport concession agreements, insurance programs and for other purposes. The Company’s primary sources of liquidity are cash generated from operations, secured vehicle financing, sales proceeds from disposal of used vehicles, letters of credit provided under the Senior Secured Credit Facilities and amounts payable under insurance bonds.

The Company believes that its cash generated from operations, cash balances and secured vehicle financing programs are adequate to meet its liquidity requirements for the near future. The Company added $500 million of asset-backed medium-term notes in July 2011 through the issuance of its Series 2011-1 notes, and $150 million of additional fleet funding capacity in September 2011 by increasing and extending the Series 2010-3 VFN. In October 2011, the Company further modified its fleet debt capacity by terminating the $200 million Series 2010-1 VFN and the $300 million Series 2010-2 VFN, and issuing the $400 million Series 2011-2 notes. These financings together provide a funding source for future debt maturities, including any future rapid amortization event that would occur as a result of an event of bankruptcy with respect to the Monoline under the Series 2007-1 notes. Based on its current cash position, availability under the Senior Secured Credit Facilities, and availability under its secured vehicle financing programs, the Company believes it has adequate resources available to meet its fleet financing needs.

The secured vehicle financing programs require varying levels of credit enhancement or overcollateralization, which are provided by a combination of cash, vehicles and letters of credit. Enhancement levels vary based on the source of debt used to finance the vehicles. The letters of credit are provided under the Company’s Revolving Credit Facility. Additionally, enhancement levels are seasonal and increase significantly during the second quarter when the fleet is at peak levels. Enhancement requirements under asset-backed financing sources have changed significantly for the rental car industry as a whole over the past few years, and as a result, enhancement levels under the Series 2011-1 notes, the Series 2011-2 notes and the Series 2010-3 VFN are approximately 45% compared to 30% on the Series 2007-1 notes.

Cash generated by operating activities of $458.5 million for the nine months ended September 30, 2011 was primarily the result of net income, adjusted for net depreciation and a decrease in the income taxes receivable related to the receipt of a $49.8 million federal income tax overpayment.

Cash used in investing activities was $326.4 million. The principal expenditure of cash from investing activities during the nine months ended September 30, 2011 was for purchases of new revenue-earning vehicles, which totaled $983.9 million, partially offset by the sale of revenue-earning vehicles, which totaled $492.0 million, and a $76.1 million decrease in restricted cash and investments from December 31, 2010. Cash and cash equivalents - required minimum balance was eliminated in February 2011 as the $100 million requirement under the Company’s financing arrangements was eliminated (see Note 7 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. The Company expects to continue to fund its revenue-earning vehicles with borrowings under secured vehicle financing programs, cash provided from operations and from the disposal of used vehicles. The Company also used cash for non-vehicle capital expenditures of $11.2 million. These expenditures consist primarily of airport facility improvements for the Company’s rental locations and information technology-related projects.

Cash used in financing activities was $95.8 million primarily due to $1.1 billion in borrowings under the Series 2011-1 notes, the Series 2010-3 VFN and the Series 2010-2 VFN, partially offset by $500 million of scheduled debt repayments on the Series 2006-1 notes, $515 million of reductions to the amounts drawn under the Series 2010 VFNs, $56 million in principal payments in conjunction with the termination of the Canadian fleet financing facility and $148 million of principal payments on the Term Loan.

The Company has significant requirements to maintain letters of credit and surety bonds to support its insurance programs, airport concession and other obligations. At September 30, 2011, the Company had $58.6 million in letters of credit, including $54.7 million in letters of credit under the Revolving Credit Facility, and $47.1 million in surety bonds to secure these obligations. At September 30, 2011, these surety bonds and letters of credit had not been drawn.

The Company does not conduct operations in foreign jurisdictions other than Canada, and accordingly, cash and cash equivalents would not be subject to repatriation taxes or otherwise stranded in foreign jurisdictions.

Contractual Obligations and Commitments

On April 4, 2011, the Company entered into a three and one-half year data processing service agreement with HP totaling approximately $72 million. The Service Agreement includes early termination provisions, which allow the Company to terminate the Service Agreement or portions of the Service Agreement for convenience and without cause by providing HP at least 120 days prior written notice of the Company’s intent to terminate and paying a termination fee to HP on the termination date. Likewise, the Company may terminate the Service Agreement in the event of a change of control of the Company by providing HP with 60 days prior written notice of its intent to terminate and paying a termination fee to HP.

See debt discussion below for an update to the “Total Debt and Other Obligations” section of the table provided in Part II, Item 7 – Contractual Obligations and Commitments in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Asset-Backed Medium-Term Notes

The asset-backed medium-term note program at September 30, 2011 was comprised of $1.0 billion in asset-backed medium-term notes with maturities in 2012 and 2015. Borrowings under the asset-backed medium-term notes are secured by eligible vehicle collateral, among other things. The Series 2007-1 notes bear interest at a fixed rate of 5.16% including floating rate notes swapped to fixed rates. The Series 2011-1 notes, with a fixed blended interest rate of 2.81%, are comprised of $420 million principal amount Class A notes at a fixed interest rate of 2.51% and $80 million principal amount of Class B notes at a fixed interest rate of 4.38%. Proceeds from asset-backed medium-term notes, and the Series 2010 VFNs that are not utilized for financing vehicles and certain related receivables are maintained in restricted cash and investment accounts and are available for the purchase of vehicles. These amounts totaled approximately $195.3 million at September 30, 2011.

The Series 2006-1 notes began scheduled amortization in December 2010 and were paid in full in May 2011. The Series 2007-1 notes will begin scheduled amortization in February 2012, and will amortize over a six-month period. The scheduled amortization period for the Series 2007-1 notes, which are insured by FGIC, may be accelerated under certain circumstances, including an event of bankruptcy with respect to FGIC. The Series 2011-1 notes are expected to begin scheduled amortization in September 2014, and will amortize over a six-month period.

On October 26, 2011, RCFC issued $400 million of the Series 2011-2 notes, which will be repaid monthly over a six-month period, beginning in December 2014, with an expected final maturity date of May 2015, at a fixed interest rate of 3.21%. The Series 2011-2 notes require compliance with a maximum leverage ratio of 2.25 to 1.00 and a minimum interest coverage ratio of 2.00 to 1.00, consistent with the terms of the Company’s Senior Secured Credit Facilities. The Series 2011-2 notes replace the Series 2010-2 VFN, which was terminated in conjunction with the issuance (see below for further discussion).

Variable Funding Notes

The variable funding notes at September 30, 2011 were comprised of $1.1 billion in U.S. fleet financing capacity which may be drawn and repaid from time to time in whole or in part at any time during their respective revolving periods with maturities ranging from 2012 to 2013.

The Series 2010-1 VFN of $200 million and the Series 2010-2 VFN of $300 million were undrawn at September 30, 2011. As a result of the renewal of the Series 2010-3 VFN and the issuance of the Series 2011-2 notes, the Series 2010-1 and Series 2010-2 VFNs were terminated in October 2011.

On September 29, 2011, RCFC renewed the Series 2010-3 VFN, increasing the capacity to $600 million from $450 million, and the revolving period under the facility was extended to two years from the previous 364-day structure. The facility bears interest at a spread of 130 basis points above each funding institution’s cost of funds, which may be based on either the weighted average commercial paper rate, a floating one-month LIBOR rate or a Eurodollar rate. The Series 2010-3 VFN had $315 million drawn at September 30, 2011. At the end of the revolving period, the then-outstanding principal amount of the Series 2010-3 VFN will be repaid monthly over a three-month period, beginning in October 2013, with the final payment in December 2013. The Series 2010-3 VFN requires a maximum leverage ratio of 2.25 to 1.00 and a minimum interest coverage ratio of 2.00 to 1.00, consistent with the terms of the Amendment.

Canadian Fleet Financing

On April 18, 2011, the Company’s excess cash position and the cost differential between the interest rate on its Canadian fleet financing and interest rates earned on investment of excess cash, the Company fully repaid the outstanding balance of CAD $54.0 million (US $56.0 million) and terminated the CAD Series 2010 Program. The Company currently plans to fund any future Canadian fleet needs with cash on hand and cash generated from operations. Direct investments in the Canadian fleet funded from cash and cash equivalents totaled CAD $92.1 million (US $87.7 million) as of September 30, 2011.

Senior Secured Credit Facilities

On August 31, 2011, the Company repaid the outstanding balance of $143.1 million under the Term Loan and terminated the Term Loan portion of its Senior Secured Credit Facilities. Accordingly, at September 30, 2011, the Company’s Senior Secured Credit Facilities was comprised of only the $231.3 million Revolving Credit Facility which expires on June 15, 2013. The Senior Secured Credit Facilities contain certain financial and other covenants and are collateralized by a first priority lien on substantially all material non-vehicle assets and certain vehicle assets not pledged as collateral under a vehicle financing facility. The Company had letters of credit outstanding under the Revolving Credit Facility of $118.7 million for U.S. enhancement and $54.7 million in general purpose enhancements and remaining available capacity of $57.9 million at September 30, 2011.

On February 9, 2011, the Company and the requisite percentage of the lenders under the Company’s Senior Secured Credit Facilities entered into the Amendment, which reinstated the Company’s ability to borrow under the Revolving Credit Facility at its capacity of $231.3 million. Additionally, the Company is no longer required to maintain a minimum adjusted tangible net worth of $150 million and a minimum of $100 million of cash and cash equivalents. The Amendment replaced the foregoing covenants with a maximum leverage ratio of 2.25 to 1.00 and a minimum interest coverage ratio of 2.00 to 1.00.

In addition, the Amendment removed certain limitations relating to the issuance of enhancement letters of credit supporting asset-backed notes issued by RCFC. The Amendment eliminated events of default resulting from amortization events under certain series of RCFC’s outstanding asset-backed notes to the extent resulting from bankruptcy events with respect to the related Monolines. The Amendment also removed restrictions on allocation of capital spending to allow for certain franchise acquisitions and modified the language to permit limited dividends and share repurchases.

On September 23, 2011, the Company and the requisite percentage of the lenders under the Company’s Senior Secured Credit Facilities entered into an amendment, which amended the aggregate amount of all dividends, share repurchases and similar restricted payments permitted to be made by the Company to increase to $300 million, plus 50% of cumulative adjusted net income (or minus 100% of cumulative adjusted net loss, as applicable) for the period beginning January 1, 2011, through the last day of the quarter immediately preceding the restricted payment.

Covenant Compliance

The Company was in compliance with all covenants under its financing arrangements as of September 30, 2011.

New Accounting Standards

For a discussion on new accounting standards refer to Note 14 to Condensed Consolidated Financial Statements in Item 1 – Financial Statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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The Company’s primary market risk exposure is changing interest rates, primarily in the United States. The Company manages interest rates through use of a combination of fixed and floating rate debt and interest rate swap and cap agreements. All items described are non-trading and are stated in U.S. dollars. The fair value of the interest rate swaps and caps is calculated using projected market interest rates over the term of the related debt instruments as provided by the counterparties. Foreign exchange risk is immaterial to the consolidated results and financial condition of the Company.

Based on the Company’s level of floating rate debt (excluding notes with floating interest rates swapped into fixed rates) at September 30, 2011, a 50 basis point fluctuation in interest rates would have an approximate $2 million impact on the Company’s expected pretax income on an annual basis. This impact on pretax income would be offset by earnings from cash and cash equivalents and restricted cash and investments, which are invested on a short-term basis and subject to fluctuations in interest rates. At September 30, 2011, cash and cash equivalents totaled $499.5 million and restricted cash and investments totaled $201.3 million.

At September 30, 2011, there were no significant changes in the Company’s quantitative disclosures about market risk compared to December 31, 2010, which is included under Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, except for the net change of the derivative financial instruments noted in Notes 8 and 9 to the condensed consolidated financial statements, and except for the change in fair value since December 31, 2010 for the tabular entries, “Vehicle Debt and Obligations – Floating Rates,” from $1,178.9 million at December 31, 2010 to $806.4 million at September 30, 2011, which decrease primarily related to payments of $500 million of the Series 2006-1 notes and payments of $200 million of the Series 2010-1 VFN, partially offset by borrowings of $315 million under the Series 2010-3 VFN; “Vehicle Debt and Obligations – Fixed Rates” which increased related to borrowings of $500 million under the Series 2011-1 notes; and the elimination of the “Vehicle Debt and Obligations – Canadian Dollar Denominated” and “Non-Vehicle Debt” line items due to payoff and termination of these debt facilities in 2011.

ITEM 4. CONTROLS AND PROCEDURES

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Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The disclosure controls and procedures are also designed with the objective of ensuring such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing the disclosure controls and procedures, the Company’s management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the quarter covered by this report. Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level as of the end of the quarter covered by this report.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting as defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act, identified in connection with the evaluation of the Company’s internal control performed during the fiscal quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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For a detailed description of certain legal proceedings, see Part I, Item 3 – Legal Proceedings in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

The following recent development pertaining to a legal proceeding described in the Company’s Form 10-K is furnished on a supplemental basis:

On October 18, 2011, plaintiffs in the consolidated class action complaint filed in Delaware Chancery Court, Consolidated Case No. 5458-VCS, sought permission to amend their pleadings to assert additional claims that members of the Board breached their fiduciary duties concerning the following matters: (1) the Board’s response to a merger proposal by Avis Budget in September, 2010; (2) the Board’s use of defensive measures, including the adoption of a poison pill, in response to the Exchange Offer made by Hertz; (3) the Board’s response to the failure of Hertz to submit an improved final offer meeting certain Board criteria by October 10, 2011; and (4) the Board’s alleged failure to make full material disclosures to the Company’s stockholders concerning the Hertz offer, the Company’s stand-alone plan, and the Company’s negotiations with Hertz regarding a business combination. The court has not ruled on the plaintiffs’ request to amend. On November 1, 2011, the plaintiffs advised the court that the parties have agreed to stay further activity pending the outcome of the Hertz antitrust review process.

Aside from the above mentioned, none of the other legal proceedings described in the Company’s Form 10-K have experienced material changes.

Various legal actions, claims and governmental inquiries and proceedings have been in the past, or may be in the future, asserted or instituted against the Company, including other purported class actions or proceedings relating to the Hertz transaction terminated in October 2010 or a potential acquisition transaction, and some that may demand large monetary damages or other relief which could result in significant expenditures. Litigation is subject to many uncertainties, and the outcome of the individual litigated matters is not predictable with assurance. The Company is also subject to potential liability related to environmental matters. The Company establishes reserves for litigation and environmental matters when the loss is probable and reasonably estimable. It is reasonably possible that the final resolution of some of these matters may require the Company to make expenditures, in excess of established reserves, over an extended period of time and in a range of amounts that cannot be reasonably estimated. The term “reasonably possible” is used herein to mean that the chance of a future transaction or event occurring is more than remote but less than probable. Although the final resolution of any such matters could have a material effect on the Company's consolidated operating results for a particular reporting period in which an adjustment of the estimated liability is recorded, the Company believes that any resulting liability should not materially affect its consolidated financial position.

ITEM 1A. RISK FACTORS

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There have been no material changes to the risk factors disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, with the exception of removing the risk factors noted as “Risk Factors Relating to a Potential Business Combination Transaction” due to Avis Budget’s announcement that it would not participate in a bid to buy the Company and Hertz’s announcement that it was withdrawing its Exchange Offer.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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a)	Recent Sales of Unregistered Securities

None.

b)	Use of Proceeds

None.

c)	Purchases of Equity Securities by the Issuer and Affiliated Purchasers

					Total Number of		Approximate
					Shares Purchased		Dollar Value of
	Total Number		Average		as Part of Publicly		Shares that May Yet
	of Shares		Price Paid		Announced Plans		Be Purchased under
Period	Purchased		Per Share		or Programs		the Plans or Programs

July 1, 2011 -
July 31, 2011		-	$	-		-	$	100,000,000

August 1, 2011 -
August 31, 2011		-	$	-		-	$	100,000,000

September 1, 2011 -
September 30, 2011		-	$	-		-	$	400,000,000

Total		-				-

On September 26, 2011, the Company announced that its Board of Directors had increased the authorization of the share repurchase program previously announced on February 24, 2011 of up to $100 million to up to $400 million of the Company’s common stock. The share repurchase program is discretionary and has no expiration date. Subject to applicable law, the Company may repurchase shares through forward stock repurchase agreements, accelerated stock buyback programs, directly in the open market, in privately negotiated transactions, or pursuant to derivative instruments or plans complying with SEC Rule 10b5-1, among other types of transactions and arrangements. Additionally, share repurchases will be subject to applicable limitations under the Senior Secured Credit Facilities, which as of September 30, 2011, permitted share repurchases totaling approximately $362 million (see Note 7 to Condensed Consolidated Financial Statements in Item 1 - Financial Statements for further discussion). The share repurchase program may be suspended or discontinued at any time. The Company expects to complete share repurchases of up to $100 million per quarter over the course of the next four quarters, and anticipates that purchases will be executed through forward stock repurchase agreements each quarter. No shares have been repurchased under the share repurchase program as of September 30, 2011.

ITEM 6. EXHIBITS

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4.241	Amended and Restated Note Purchase Agreement, dated as of September 29, 2011, among Rental Car Finance Corp., as seller, Dollar Thrifty Automotive Group, Inc., as master servicer, the conduit purchasers and/or committed purchasers identified as such on Schedule III thereto and such other conduit purchasers and/or committed purchasers from time to time party thereto, Deutsche Bank AG, New York Branch, as administrative agent and the managing agents identified as such on Schedule III thereto and such other managing agents from time to time party thereto (incorporated by reference to Exhibit 4.241 to Dollar Thrifty Automotive Group, Inc.’s Form 8-K dated September 29, 2011 (Commission File No. 1-13647))
4.242	Amended and Restated Series 2010-3 Supplement dated as of September 29, 2011 to the Amended and Restated Base Indenture dated as of February 14, 2007, between Rental Car Finance Corp. and Deutsche Bank Trust Company Americas, as trustee (incorporated by reference to Exhibit 4.242 to Dollar Thrifty Automotive Group, Inc.’s Form 8-K dated September 29, 2011 (Commission File No. 1-13647))
4.243	Amended and Restated Master Motor Vehicle Lease and Servicing Agreement (Group VII), dated as of September 29, 2011, among Rental Car Finance Corp., as lessor, Dollar Thrifty Automotive Group, Inc., as guarantor and master servicer, DTG Operations, Inc., as lessee and servicer, and those permitted lessees becoming lessees and servicers thereunder (incorporated by reference to Exhibit 4.243 to Dollar Thrifty Automotive Group, Inc.’s Form 8-K dated September 29, 2011 (Commission File No. 1-13647))
4.244	Master Termination Agreement, dated as of October 11, 2011, among Rental Car Finance Corp., as issuer, lessor, financing source and beneficiary, Dollar Thrifty Automotive Group, Inc., as master servicer and guarantor, DTG Operations, Inc., as lessee, servicer and lessee grantor, Deutsche Bank Trust Company Americas, as trustee, financing source, beneficiary and master collateral agent, Saratoga Funding Corp., LLC, as conduit purchaser, and Deutsche Bank AG, New York Branch, as committed purchaser, managing agent and administrative agent (incorporated by reference to Exhibit 4.244 to Dollar Thrifty Automotive Group, Inc.’s Form 8-K dated October 11, 2011 (Commission File No. 1-13647))
4.245	Note Purchase Agreement, dated as of October 26, 2011 among Rental Car Finance Corp., as seller, Dollar Thrifty Automotive Group, Inc., as master servicer, Wells Fargo Bank, N.A., as initial note purchaser and the note purchasers from time to time party thereto (incorporated by reference to Exhibit 4.245 to Dollar Thrifty Automotive Group, Inc.’s Form 8-K dated October 26, 2011 (Commission File No. 1-13647))
4.246	Series 2011-2 Supplement to Amended and Restated Base Indenture, dated as of October 26, 2011, between Rental Car Finance Corp. and Deutsche Bank Trust Company Americas, as trustee (incorporated by reference to Exhibit 4.246 to Dollar Thrifty Automotive Group, Inc.’s Form 8-K dated October 26, 2011 (Commission File No. 1-13647))

4.247	Enhancement Letter of Credit Application and Agreement, dated as of October 26, 2011, among DTG Operations, Inc., Rental Car Finance Corp., Dollar Thrifty Automotive Group, Inc. and Deutsche Bank Trust Company Americas, as Series 2011-2 letter of credit issuer (incorporated by reference to Exhibit 4.247 to Dollar Thrifty Automotive Group Inc.’s Form 8-K dated October 26, 2011 (Commission File No. 1-13647))
4.248	Master Termination Agreement, dated as of October 26, 2011, among Rental Car Finance Corp., as issuer, lessor, financing source and beneficiary, Dollar Thrifty Automotive Group, Inc., as master servicer and guarantor, DTG Operations, Inc., as lessee, servicer and lessee grantor, Deutsche Bank Trust Company Americas, as trustee, financing source, beneficiary and master collateral agent, and Wells Fargo Bank, N.A., as note purchaser (incorporated by reference to Exhibit 4.248 to Dollar Thrifty Automotive Group, Inc.’s Form 8-K dated October 26, 2011 (Commission File No. 1-13647))
10.246	Tenth Amendment to Credit Agreement, dated as of September 23, 2011, among Dollar Thrifty Automotive Group, Inc., as borrower, Deutsche Bank Trust Company Americas, as administrative agent and letter of credit issuer, and various financial institutions party thereto (incorporated by reference to Exhibit 10.246 to Dollar Thrifty Automotive Group, Inc.’s Form 8-K dated September 23, 2011 (Commission File No. 1-13647))
10.247	Fourth Amendment dated August 1, 2011 to Vehicle Rental Supply Agreement effective as of March 5, 2008, by and between Expedia, Inc. and Dollar Thrifty Automotive Group, Inc. (portions of the exhibit have been omitted pursuant to a request for confidential treatment)
10.248	Vehicle Purchase Agreement dated August 18, 2011 (effective October 12, 2011) between General Motors LLC and Dollar Thrifty Automotive Group, Inc. (portions of the exhibit have been omitted pursuant to a request for confidential treatment)
15.42	Letter from Ernst & Young LLP regarding interim financial information
31.77	Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.78	Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.77	Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.78	Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

_____________________

*Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

SIGNATURES

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.


November 2, 2011	By:	/s/ SCOTT L. THOMPSON
		Scott L. Thompson President, Chief Executive Officer and Principal Executive Officer
November 2, 2011	By:	/s/ H. CLIFFORD BUSTER III
		H. Clifford Buster III Senior Executive Vice President, Chief Financial Officer and Principal Financial Officer

INDEX TO EXHIBITS

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Exhibit Number Description

10.247	Fourth Amendment dated August 1, 2011 to Vehicle Rental Supply Agreement effective as of March 5, 2008, by and between Expedia, Inc. and Dollar Thrifty Automotive Group, Inc. (portions of the exhibit have been omitted pursuant to a request for confidential treatment)
10.248	Vehicle Purchase Agreement dated August 18, 2011 (effective October 12, 2011) between General Motors LLC and Dollar Thrifty Automotive Group, Inc. (portions of the exhibit have been omitted pursuant to a request for confidential treatment)
15.42	Letter from Ernst & Young LLP regarding interim financial information
31.77	Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.78	Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.77	Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.78	Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

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Dollar Thrifty Automotive Inactive 10-Q2011 Q3 Quarterly report

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