Dollar Rent A Car 2011 Annual Report Download - page 43

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 proceeds from the disposal of used vehicles. 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 and availability under the New Revolving Credit Facility.
The Company believes that its cash generated from operations, cash balances, availability under the New Revolving Credit Facility and secured vehicle
financing programs are adequate to meet its liquidity requirements for the near future. The Company has asset-backed medium-term note maturities totaling
$500 million that amortize in equal monthly installments from February 2012 through July 2012. The Company added $500 million of asset-backed
medium-term notes in July 2011 through the issuance of its Series 2011-1 notes and $400 million of asset-backed medium-term notes in October 2011 through
the issuance of the Series 2011-2 notes as well as extended and increased the Series 2010-3 variable funding notes (“VFN”) from $450 million to $600 million
in September 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 in October 2011.
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 New 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. Based on expected future peak fleet levels and the scheduled amortization of the Series 2007-1 notes, which will
begin in February 2012, the Company expects to provide up to $75 million of additional enhancement in 2012 compared to 2011 levels.
Operating Activities
Net cash generated by operating activities of $567.3 million, $461.9 million and $535.9 million for 2011, 2010 and 2009, respectively, are primarily the
result of net income adjusted for depreciation expense and income taxes.
Investing Activities
Net cash used in investing activities was $402.5 million for 2011. The principal expenditure of cash from investing activities was for purchases of new
revenue-earning vehicles, which totaled $1.2 billion, partially offset by the sale of revenue-earning vehicles, which totaled $0.8 billion. 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 Item 8 – Note 1 of Notes to Consolidated Financial Statements). Additionally, restricted cash and investments decreased $75.9 million from
December 31, 2010. The Company also used cash for non-vehicle capital expenditures of $16.6 million in 2011. These expenditures consist primarily of
airport facility improvements for the Company’s rental locations and IT-related projects. The Company estimates non-vehicle capital expenditures to be
approximately $25 million in 2012 related to airport facility projects and IT equipment and systems.
Net cash used in investing activities was $59.1 million for 2010. The principal component of cash used in investing activities was for purchases of new
revenue-earning vehicles, which totaled $1.2 billion, partially offset by proceeds from the sale of revenue-earning vehicles, which totaled $0.9 billion. In
addition, restricted cash and investments decreased $345.1 million from December 31, 2009, primarily due to the repayment of the Series 2005-1 notes.
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