Description
Dollar Thrifty. 10% Owner Management L Pentwater Capital bought 7,800 shares on 6-15-2012 at $ 79.86
BUSINESS OVERVIEW
Company Overview
General
Dollar Thrifty Automotive Group, Inc., a Delaware corporation (“DTG”), owns DTG Operations, Inc. (“DTG Operations”), Dollar Rent A Car, Inc. and Thrifty, Inc. Thrifty, Inc. owns Thrifty Rent-A-Car System, Inc. and Thrifty Car Sales, Inc. (“Thrifty Car Sales”). Thrifty Rent-A-Car System, Inc. owns Dollar Thrifty Automotive Group Canada Inc. (“DTG Canada”). DTG operates under a corporate structure that combines the management of operations and administrative functions for both the Dollar and Thrifty brands. DTG Operations operates company-owned stores under the Dollar brand and the Thrifty brand, operates reservation centers for both brands and conducts sales and marketing activities for both brands. Thrifty Rent-A-Car System, Inc. and Dollar Rent A Car, Inc. conduct franchising activities for their respective brands. Thrifty Car Sales operates a franchised retail used car sales network. The Company also has a special purpose financing entity, Rental Car Finance Corp. (“RCFC”), which has been consolidated in the financial statements of the Company. Dollar Rent A Car, Inc., the Dollar brand and DTG Operations operating under the Dollar brand are individually and collectively referred to hereafter as “Dollar”. Thrifty, Inc., Thrifty Rent-A-Car System, Inc., Thrifty Car Sales, the Thrifty brand and DTG Operations operating under the Thrifty brand are individually and collectively referred to hereafter as “Thrifty”. DTG, Dollar and Thrifty and each of their subsidiaries are individually or collectively referred to herein as the “Company”, as the context may require.
The Company is the successor to Pentastar Transportation Group, Inc., which was formed in 1989 to acquire and operate the rental car subsidiaries of Chrysler Group, LLC, the new legal entity following the restructuring of Chrysler LLC (formerly known as DaimlerChrysler Corporation) (such successor or predecessor entity, as the context may require, and its subsidiaries and members of its affiliated group are hereinafter referred to as “Chrysler”). DTG Operations, formerly known as Dollar Rent A Car Systems, Inc., was incorporated in 1965. Thrifty Rent-A-Car System, Inc. was incorporated in 1950 and Dollar Rent A Car, Inc. was incorporated in December 2002. Thrifty, Inc. was incorporated in December 1998.
Operating Structure
Dollar and Thrifty and their respective independent franchisees operate the Dollar and Thrifty vehicle rental systems. The Dollar and Thrifty brands represent a value-priced rental vehicle generally appealing to leisure customers, including foreign tourists, and to small businesses, government business and independent business travelers. As of December 31, 2011, Dollar and Thrifty had 586 locations in the U.S. and Canada, of which 280 were company-owned stores and 306 were locations operated by franchisees.
In the U.S., Dollar's main focus is operating company-owned stores located in major airports, and it derives substantial revenues from leisure and tour package rentals. Thrifty focuses on serving both the airport and local markets operating through a network of company-owned stores and franchisees. Dollar and Thrifty currently derive the majority of their U.S. revenues from providing rental vehicles and services directly to rental customers. Consequently, Dollar and Thrifty incur the costs of operating company-owned stores, and their revenues are directly affected by changes in rental demand and pricing. Dollar and Thrifty also have franchisees in countries outside the U.S. and Canada and derive revenues from franchise fees and by providing services such as reservation and rate management services.
Company Strategy
The Company believes that the U.S. travel markets should continue to improve in 2012. The Company’s business strategy is designed to capitalize on these improving conditions and achieve sustained, profitable growth based on the following key initiatives:
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Focus on Profitability of Core Operations . The Company’s focus is on maximizing profitability of its core operations and return on assets. Key to this effort has been a focus on the optimal balance between transaction volume and pricing, including particularly enhancing rate per day, even where achieving this objective has resulted in reduced rental days. The Company’s primary focus is the top 75 airport markets in the U.S. and in key leisure destinations. The Company continues to focus on maximizing profitability of its company-owned stores and continually monitors its stores in light of return on asset and profitability targets. The Company expects to increase revenues and profitability through expansion of its commercial and tour business, particularly with small and mid-sized corporate customers, and continued improvements in the convenience, value and service it offers to customers.
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Enhanced Fleet Diversification and Fleet Management . The Company operates a diversified fleet, focused on maintaining inventory in line with travel demand, and product mix in line with customer demand. The Company’s expected fleet composition for the 2012 model year is comprised of vehicles from Chrysler (35%), Ford Motor Company (“Ford”) (26%), General Motors Company (“General Motors”) (14%) and other manufacturers (25%). A diversified fleet enables the Company to offer customers a wider range of vehicle options. The Company has also reduced its credit exposure to the major vehicle manufacturers by shifting its fleet mix to a greater proportion of vehicles purchased outside of manufacturer residual value programs, which has also reduced funding requirements and vehicle depreciation rates. The Company will also continue to explore alternative ways of disposing of its rental fleet to maximize proceeds, particularly through enhanced Internet sales opportunities and expanding retail sales.
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Expand Brand Representation in Select Markets Through Franchising . The Company has a growing franchisee network, which provides it with brand representation in international markets, smaller U.S. airport locations and local markets that are not part of the Company’s core strategic focus. In those markets, franchised operations can provide the Company with recurring and stable sources of profit. In optimizing its ownership mix, the Company may continue to acquire franchisees on a limited and opportunistic basis for purposes of brand consolidation or to improve its representation in larger markets that may be under-served. In international markets outside of North America, the Company exclusively utilizes its franchise network to promote its operations, and will continue to pursue international franchise expansion as a growth opportunity. During 2011, the Company granted 18 and 4 new franchises to domestic and international franchisees, respectively.
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Continued Focus on Cost Controls. The Company has undertaken significant cost control and productivity initiatives in recent years and considers its low cost structure to be a competitive strength. In addition to key areas such as personnel productivity initiatives utilized to optimize staffing levels, planned initiatives include further reliance on outsourcing arrangements and elimination of redundant systems, further expansion of consolidated purchasing programs and expanded use of best practices throughout the Company.
Available Information
The Company makes available free of charge on or through its Internet Web site its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such material has been electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The Company’s Internet address is http://www.dtag.com.
The SEC also maintains a Web site that contains all of the Company’s filings at http://www.sec.gov. Information on the Company’s Web site is not incorporated into this Form 10-K.
The Company has a code of business conduct, which is available on the Company’s Web site under the heading, “About DTG”. The Company’s Board of Directors has adopted a corporate governance policy and Board committee charters, which are updated periodically and can be found on the Company’s Web site under the heading, “Corporate Governance”. A copy of the code of business conduct, the corporate governance policy and the charters are available without charge upon request to the Company’s headquarters as listed on the front of this Form 10-K, attention “Investor Relations” department.
Industry Overview
The Company competes primarily in the U.S. car rental industry. The U.S. daily car rental industry has two principal markets: the airport market and the local market. Vehicle rental companies that focus on the airport market rent primarily to leisure and business travelers. Companies focusing on the local market rent primarily to persons who need a vehicle periodically for personal or business use or who require a temporary replacement vehicle. Rental companies also sell used vehicles and ancillary products such as refueling services, navigation systems and loss damage waivers to vehicle renters. As a general matter, the car rental industry is significantly dependent on conditions in the overall leisure and business travel markets.
Vehicle rental companies typically incur substantial debt to finance their fleets which makes them dependent on access to the fleet financing and capital markets to fund operations, and also has a direct impact on profitability due to the interest costs associated with the debt and fluctuations in interest rates. Although the fleet financing market has improved significantly since 2009, new issuances in these markets, including those undertaken by the Company, have required higher collateral enhancement rates than the industry has faced historically. This increase in collateral enhancements will have a direct impact on the capital required to support operations in future periods.
Vehicle rental companies are also dependent on vehicle manufacturers and overall economic conditions in the new and used vehicle markets, as these factors directly impact the cost of acquiring vehicles, and the ultimate disposition value of vehicles, both of which impact operating cost. Historically, rental companies acquired a large portion of their fleets under residual value programs (“Residual Value Programs”), under which vehicle manufacturers repurchase or guarantee the resale value of the vehicle in future periods, thereby allowing the rental companies to fix their holding cost of the vehicle (“Program Vehicles”). Most vehicle rental companies have in recent periods increased their vehicle purchases made outside of Residual Value Programs to lower fleet costs and reduce the risk related to the creditworthiness of the vehicle manufacturers, which has increased their dependence on the used vehicle market in terms of both determining holding cost, and for ultimate disposition of the vehicles. Vehicle rental companies bear residual value risk for these vehicles, which are referred to as “Non-Program Vehicles” or “risk vehicles”.
The U.S. rental car industry has nine top brands which are owned by four companies. Three of the companies are publicly held: Dollar and Thrifty operated by the Company; Avis and Budget operated by Avis Budget Group, Inc. (“Avis Budget”) and Hertz and Advantage operated by Hertz Global Holdings, Inc. (“Hertz”). The remaining three brands of Alamo, National and Enterprise are operating subsidiaries of Enterprise Rent-A-Car Company, which is privately held. The Company also faces competition from local and regional car rental companies in the United States, some of which have the ability to impact pricing in numerous large airports in the United States. There is intense competition in the U.S. car rental industry on the basis of price, service levels, vehicle quality, vehicle availability and the convenience and condition of rental locations.
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. This general seasonal variation in demand, along with more localized changes in demand, causes the Company to vary its fleet size over the course of the year. To accommodate increased demand in the summer vacation period, the Company increases its available fleet and staff and as demand declines, the fleet and staff are decreased accordingly. Certain operating expenses, such as minimum concession fees, rent, insurance and administrative overhead represent fixed costs and cannot be adjusted for seasonal increases or decreases in demand. In 2011, the Company’s average monthly fleet size ranged from a low of approximately 94,000 vehicles in the first quarter to a high of approximately 118,000 vehicles in the second quarter.
The Company
The Company has two value rental car brands, Dollar and Thrifty, with a strategy to operate company-owned stores in the top 75 airport markets and in key leisure destinations in the United States. In the U.S., the Dollar and Thrifty brands are marketed separately, but operate under a single management structure and share vehicles, back-office employees and facilities, where possible. The Company also operates company-owned stores in five of the eight largest airport markets in Canada under DTG Canada. In Canada, the company-owned stores are primarily co-branded.
Dollar and Thrifty Brands
Dollar
Dollar’s main focus is serving the airport vehicle rental market, which is comprised of business and leisure travelers. The majority of its locations are on or near airport facilities. Dollar operates primarily through company-owned stores in the U.S. and Canada, and also licenses to independent franchisees which operate as a part of the Dollar brand system. At December 31, 2011, Dollar had 81 company-owned stores at airports and 54 in local markets, and 64 franchised in-terminal airport locations and 61 franchised local market operations in the U.S. and Canada. In Canada, Dollar operates company-owned stores in five of the eight largest airport markets.
As of December 31, 2011, Dollar’s vehicle rental system included 260 locations in the U.S. and Canada, consisting of 135 company-owned stores and 125 franchisee locations. Dollar’s total rental revenue generated by company-owned stores was $892 million for the year ended December 31, 2011.
Thrifty
Thrifty serves both the airport and local markets through company-owned stores and its franchisees which derive approximately 90% of their combined rental revenues from the airport market and approximately 10% from the local market. At December 31, 2011, Thrifty had 81 company-owned stores at airports and 64 in local markets, and 75 franchised in-terminal airport locations and 106 franchised local market operations in the U.S. and Canada.
At December 31, 2011, Thrifty’s vehicle rental system included 326 rental locations in the U.S. and Canada, consisting of 145 company-owned stores and 181 franchisee locations. Thrifty’s total rental revenue generated by company-owned stores was $592 million for the year ended December 31, 2011.
Corporate Operations
United States
The Company’s operating model for U.S. Dollar and Thrifty company-owned stores includes generally maintaining separate airport counters, reservations, marketing and all other customer contact activities, while using a single management team for both brands. In addition, this operating model includes sharing vehicles, bussing operations, back-office employees and service facilities, where possible.
As of December 31, 2011, the Company operates each of the Dollar brand in 58 and the Thrifty brand in 59 of the top 75 airport markets in the U.S. and operates both brands in 53 of those top 75 airport markets.
Canada
The Company operates in Canada through DTG Canada. The Company currently operates company-owned stores in five of the eight largest airport markets in Canada: Calgary, Toronto, Montreal, Halifax and Vancouver. The majority of the markets are operated under the Company’s co-branding strategy in Canada where both the Dollar and Thrifty brands are represented at one shared location.
Tour Rentals
Vehicle rentals by customers of foreign and U.S. tour operators generated approximately $262 million or 17.7% of the Company’s rental revenues for the year ended December 31, 2011. These rentals are usually part of tour packages that can also include air travel and hotel accommodations. No single operator account generated in excess of 3% of the Company’s 2011 rental revenues.
Thrifty Car Sales
Thrifty Car Sales provides an opportunity to franchised rental service providers to enhance or build their used car operations under a well-recognized national brand name. In addition to the use of the brand name, dealers have access to a variety of products and services offered by Thrifty Car Sales. These products and services include participation in a full service business development center, a nationally supported Internet strategy and Web site, operational and marketing support, vehicle supply services and customized retail and wholesale financing programs, as well as national accounts and supply programs. At December 31, 2011, Thrifty Car Sales had 32 franchise locations.
Other Services
Supplemental Equipment and Optional Products – Dollar and Thrifty make available loss damage waivers and insurance products related to the vehicle rental, subject to availability and applicable local law, rent global positioning system (GPS) equipment, ski racks, infant and child seats and other supplemental equipment, offer a Rent-a-Toll product for electronic toll payments, and sell pre-paid gasoline and roadside emergency benefit programs (Road Safe and TripSaver).
Parking Services – Airport parking operations are a natural complement to vehicle rental operations. The Company operates 10 corporate parking operations.
Supplies and National Account Programs – The Company makes bulk purchases of items used by its franchisees, which it sells to franchisees at prices that are often lower than they could obtain on their own. The Company also negotiates national account programs to allow its franchisees to take advantage of volume discounts for many products or services such as tires, glass and long distance telephone and overnight mail services.
Reservations
The Internet is the primary source of reservations for the Company. For the year ended December 31, 2011, approximately 76% of the Company’s total non-tour reservations came through the Internet, slightly increasing from approximately 75% in 2010. During 2011, the Company’s Internet Web sites (dollar.com and thrifty.com) provided approximately 42% of total non-tour reservations. Third-party Internet sites provided 34% of non-tour reservations, with no third-party site providing more than 10% of total non-tour reservations. The remaining non-tour reservations were primarily provided by reservation call centers and travel agents. Dollar and Thrifty reservation systems are linked to all major airline reservation systems and to travel agencies in the U.S., Canada and abroad.
Marketing
Dollar and Thrifty are positioned as value car rental companies in the travel industry, providing on-airport convenience with low rates on quality vehicles. Customers who rent from Dollar and Thrifty are cost-conscious leisure, government and business travelers who want to save money on car rentals without compromising the quality of car rental products and services.
Dollar and Thrifty acquire these value-oriented customers through a multi-faceted marketing approach that involves traditional and Internet advertising, Internet search marketing, sales teams, strategic marketing partners, and investments in traditional and emerging distribution channels. Each of these disciplines has a specific focus on selected customer segment opportunities.
Strategic Marketing Partners
Dollar and Thrifty have aligned themselves with certain strategic marketing partners to facilitate the growth of their business.
MANAGEMENT DISCUSSION FROM LATEST 10K
Overview
The Company operates two value rental car brands, Dollar and Thrifty. The majority of its customers pick up their vehicles at airport locations. Both brands are value priced and the Company seeks to be the industry’s low cost provider. Leisure customers typically rent vehicles for longer periods than business customers, resulting in lower costs per transaction due to less frequent operational interaction.
Both Dollar and Thrifty operate through a network of company-owned stores and franchisees. The majority of the Company’s revenue is generated from renting vehicles to customers through company-owned stores, with lesser amounts generated through parking income, vehicle leasing, royalty fees and services provided to franchisees.
The Company’s profitability is primarily a function of the volume and pricing of rental transactions, vehicle utilization rates and depreciation expense. Significant changes in the purchase or sales price of vehicles or interest rates can also have a significant effect on the Company’s profitability, depending on the ability of the Company to adjust its pricing for these changes. The Company’s business requires significant expenditures for vehicles and, consequently, requires substantial liquidity to finance such expenditures.
In 2011, the Company’s vehicle rental revenues increased when compared to 2010, primarily due to a 3.8% increase in the number of rental days, partially offset by a 2.9% decrease in average revenue per day.
During 2011, expenses declined 4.0% compared to 2010. The Company had lower net vehicle depreciation and lease charges primarily due to lower depreciation rates per vehicle resulting from continued favorable conditions in the used car market, mix optimization through a more diversified fleet and improved remarketing efforts. Selling, general and administrative expenses decreased primarily due to lower merger-related costs. Net interest expense decreased primarily due to lower average vehicle debt and lower interest rates. Additionally, the Company experienced increases in the fair value of derivatives in 2011 and 2010 of $3.2 million and $28.7 million, respectively.
The combination of these factors contributed to net income of $159.6 million for the year ended December 31, 2011, compared to net income of $131.2 million for the year ended December 31, 2010. Excluding the change in fair value of derivatives and non-cash charges related to the impairment of long-lived assets, net of tax, non-GAAP net income was $157.7 million for the year ended December 31, 2011 compared to non-GAAP net income of $115.0 million for the year ended December 31, 2010. Corporate Adjusted EBITDA for 2011 was $298.6 million compared to $235.7 million in 2010. Additionally, the Company incurred $4.6 million in merger-related expenses for the year ended December 31, 2011, compared to $22.6 million for the year ended December 31, 2010. Reconciliations of non-GAAP financial measures to the comparable measures calculated in accordance with generally accepted accounting principles in the United States (“GAAP”) are presented below.
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.
Operating Results
The Company had income before income taxes of $221.4 million in 2010 compared to income before income taxes of $81.0 million in 2009.
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’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.
The Company also used cash for non-vehicle capital expenditures of $23.0 million in 2010. These expenditures consist primarily of airport facility improvements for the Company’s rental locations and IT-related projects.
Net cash provided by investing activities was $279.0 million for 2009. The principal component of cash provided by investing activities was the sale of revenue-earning vehicles, which totaled $1.5 billion in proceeds. This source of cash was partially offset by the purchase of revenue-earning vehicles, which totaled $1.1 billion, and the $100 million of cash and cash equivalents required to be maintained at all times under the Senior Secured Credit Facilities and separately identified on the balance sheet as cash and cash equivalents – required minimum balance. Restricted cash at December 31, 2009 increased $26.0 million from the previous year, including $22.8 million available for vehicle purchases or debt service, coupled with $3.2 million of interest income earned on restricted cash and investments. Non-vehicle capital expenditures were $15.5 million in 2009. These expenditures consisted primarily of airport facility improvements for the Company’s rental locations and investments in IT-related equipment and systems.
Financing Activities
Net cash used in financing activities was $119.3 million in 2011 primarily due to a $100 million forward stock repurchase agreement entered into and pre-funded in November 2011 to buyback Company shares. The Company also paid $14.8 million in deferred financing costs associated with the issuance of the Series 2011-1 notes, Series 2011-2 notes and renewal of Series 2010-3 VFN. In 2011, the Company made payments of $1.5 billion primarily including $500 million of scheduled debt repayments on the Series 2006-1 notes, $830 million of reductions to the amounts drawn under the Series 2010 VFNs, and $148 million of principal payments on the Term Loan. These payments were offset by $1.5 billion in borrowings under the Series 2011-1 notes, the Series 2011-2 notes, the Series 2010-3 VFN and the Series 2010-2 VFN.
Net cash used in financing activities was $340.1 million in 2010, primarily due to $400 million of scheduled debt repayments on the Series 2005-1 notes and $100 million of scheduled debt repayments on the Series 2006-1 notes, as well as a net reduction in Canadian debt of $20 million and a $10 million scheduled repayment of the Term Loan. The Company also paid $11.8 million in deferred financing costs associated with the issuance of the Series 2010-1 VFN, Series 2010-2 VFN and Series 2010-3 VFN. These uses of cash were partially offset by the issuance of the Series 2010-1 VFN totaling $200 million.
Net cash used in financing activities was $644.1 million in 2009, primarily due to the repayment of amounts outstanding under the Company’s liquidity and conduit facilities in the amount of $274.9 million and $215.0 million, respectively. Additionally, due to the non-renewal of its vehicle manufacturer and bank lines of credit, the Company repaid $233.7 million of debt outstanding under these arrangements. The Company also prepaid $20 million of the Term Loan and paid $6.6 million in deferred financing cost associated with amendments to the Senior Secured Credit Facilities. The Company also paid $6.6 million in fees related to the issuance of an additional 6.6 million shares of common stock in November 2009. These uses of cash were partially offset by $129.6 million of proceeds from the issuance of common stock.
Contractual Obligations and Commitments
The Company has various contractual commitments primarily related to asset-backed medium-term notes, asset-backed VFNs, airport concession fee and operating lease commitments related to airport and other facilities (some consisting of minimum annual guarantees as defined in the lease agreements), technology contracts, and vehicle purchases. The Company expects to fund these commitments with existing cash resources, cash generated from operations, sales proceeds from disposal of used vehicles and future issuances of asset-backed notes as existing notes mature.
Asset-Backed Medium-Term Notes
The asset-backed medium-term note program at December 31, 2011 was comprised of $1.4 billion in asset-backed medium-term notes with maturities in 2012 through 2015. Borrowings under the asset-backed medium-term notes are secured by eligible vehicle collateral, among other things. The Series 2007-1 notes of $500 million are floating rate notes that were previously effectively converted to fixed rate notes through the entry into swap agreements. On December 28, 2011, the Company terminated its swap agreements related to the Series 2007-1 notes and paid a termination fee of $8.8 million to settle the liability. The remaining unamortized value of the hedge in accumulated other comprehensive income (loss) on the balance sheet will be reclassified into earnings as interest expense over the remaining term of the related debt through July 2012. The Series 2011-1 notes, with a fixed blended interest rate of 2.81%, are comprised of $420 million principal amount Class A notes with a fixed interest rate of 2.51% and $80 million principal amount of Class B notes with a fixed interest rate of 4.38%. The Series 2011-2 notes of $400 million have a fixed interest rate of 3.21%. Proceeds from the asset-backed medium-term notes 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 $346.8 million at December 31, 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 Financial Guaranty Insurance Company (“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. The Series 2011-2 notes are expected to begin scheduled amortization in December 2014 and will amortize over a six-month period.
Variable Funding Notes
VFNs at December 31, 2011 were comprised of $600 million in U.S. fleet financing capacity that may be drawn and repaid from time to time in whole or in part during the revolving period, which ends in September 2013.
In October 2011, the Series 2010-1 and Series 2010-2 VFNs were terminated as a result of the renewal and increase of the Series 2010-3 VFN and the issuance of the Series 2011-2 notes.
The Series 2010-3 VFN of $600 million was undrawn at December 31, 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 expected payment date in December 2013. The Series 2010-3 VFN requires a maximum leverage ratio of 3.0 to 1.0, a minimum interest coverage ratio of 2.0 to 1.0 and a minimum corporate EBITDA requirement of $75 million, consistent with the covenants in the New Revolving Credit Facility.
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. Direct investments in the Canadian fleet funded from cash and cash equivalents totaled CAD $64.9 million (US $63.5 million) as of December 31, 2011.
Senior Secured Credit Facilities
On August 31, 2011, the Company repaid the outstanding balance of $143.1 million under the term loan (the “Term Loan”) and terminated the Term Loan portion of its senior secured credit facilities (the “Senior Secured Credit Facilities”). Accordingly, at December 31, 2011, the Company’s Senior Secured Credit Facilities was comprised of only the $231.3 million revolving credit facility (the “Revolving Credit Facility”) which was refinanced and terminated on February 16, 2012. The Senior Secured Credit Facilities contained certain financial and other covenants and were 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 $144.3 million for U.S. enhancement and $54.7 million in general purpose letters of credit with remaining available capacity of $32.3 million at December 31, 2011.
On February 16, 2012, the Company terminated its existing Senior Secured Credit Facilities and replaced it with the $450 million New Revolving Credit Facility that expires in February 2017. Under the New Revolving Credit Facility, the Company is subject to a maximum corporate leverage ratio of 3.0 to 1.0, a minimum corporate interest coverage ratio of 2.0 to 1.0, and a minimum corporate EBITDA requirement of $75 million. In addition, the New Revolving Credit Facility contains covenants restricting our ability to undertake certain activities, including, among others, restrictions on the Company’s ability to incur additional indebtedness, make loans, acquisitions or other investments, grant liens on its property, dispose of assets, pay dividends or conduct stock repurchases, make capital expenditures or engage in certain transactions with affiliates.
Under the New Revolving Credit Facility, certain restrictions were relaxed or extended from the Senior Secured Credit Facilities, so that we have the ability (subject to specified conditions and limitations), among other things, to incur up to $400 million of unsecured notes of the Company, to enter into permitted acquisitions of up to $250 million in the aggregate during the term of the New Revolving Credit Facility and to incur financing and assume indebtedness in connection therewith, and to make investments in our U.S. special-purpose financing entities (including RCFC) and our Canadian special-purpose financing entities, in aggregate amounts at any time outstanding of up to $750 million and $150 million, respectively. In addition, we renewed and extended our ability, subject to certain limitations, to make dividend, stock repurchase and other restricted payments under the New Revolving Credit Facility, in an amount up 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, 2012 and ending on the last day of the fiscal quarter immediately preceding the restricted payment. Covenant Compliance
The Company was in compliance with all covenants under its financing arrangements as of December 31, 2011.
Debt Servicing Requirements
The Company will continue to have substantial debt and debt service requirements under its financing arrangements. As of December 31, 2011, the Company’s consolidated funded debt and other obligations totaled approximately $1.4 billion, all of which was secured debt for the purchase of vehicles. All of the Company’s vehicle debt is issued by special purpose finance entities as described herein, all of which are fully consolidated into the Company’s financial statements. The Company has scheduled annual principal payments for vehicle debt of $500 million in 2012, $400 million in 2014 and $500 million in 2015.
The Company intends to use existing cash resources and cash generated from operations to fund non-vehicle capital expenditures, subject to restrictions under its debt instruments, and existing cash resources, cash generated from operations and proceeds from the sale of vehicles for debt service and vehicle purchases. The Company has historically repaid its debt and funded its capital investments (aside from growth in its rental fleet) with cash provided from operations and from the sale of vehicles. The Company has funded growth in its rental fleet by incurring additional secured vehicle debt and with cash generated from operations.
The Company has significant requirements for bonds and letters of credit to support its insurance programs, airport concession and other obligations. At December 31, 2011, various insurance companies had issued $47.4 million in surety bonds and various banks had issued $58.8 million in letters of credit (primarily under the Senior Secured Credit Facilities) to secure these obligations. At December 31, 2011, these surety bonds and letters of credit had not been drawn upon.
Interest Rate Risk
The Company’s results of operations depend significantly on prevailing interest rates because of the large amount of debt it incurs to purchase vehicles. In addition, the Company is exposed to increases in interest rates because a portion of its debt bears interest at floating rates. The Company estimates that, in 2012, approximately 40% of its average debt will bear interest at floating rates. See Item 8 - Note 8 of Notes to Consolidated Financial Statements.
Like-Kind Exchange and Tax Programs
The Company utilizes a like-kind exchange program for its vehicles whereby tax basis gains on disposal of eligible revenue-earning vehicles are deferred (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, with certain adjustments. The Company’s ability to defer the gains on the disposition of its vehicles under its Like-Kind Exchange Program is affected by, among other things, changes in the Company’s investment in rental fleet. Projection of the results under the Like-Kind Exchange Program is complex, requires numerous assumptions and is not subject to precise estimation. Actual results depend upon future sale and purchase transactions extending up to 180 days after year-end and actual results may differ from current projections. 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.
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 quarter of 2011, the Company received federal tax refunds of $50 million based on overpayments of estimated taxes made in 2010, as a result of the enactment of the Small Business and Tax Relief Acts.
The Like-Kind Exchange Program has historically increased the amount of cash and investments restricted for the purchase of replacement vehicles, especially during seasonally reduced fleet periods. At December 31, 2011, restricted cash and investments totaled $353.3 million and are restricted for the acquisition of revenue-earning vehicles and other specified uses as defined under asset-backed financing programs and the Like-Kind Exchange Program. The majority of the restricted cash and investments balance is normally utilized in the second and third quarters for seasonal purchases.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
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’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 Revolving Credit Facility.
The Company believes that its cash generated from operations, cash balances, availability under the 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 $333 million that amortize in equal monthly installments from April 2012 through July 2012. In February 2012, the Company terminated the existing senior secured credit facility and replaced it with a $450 million Revolving Credit Facility, and in March 2012, the Company completed the $150 million CAD Series 2012-1 notes.
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. Based on expected future peak fleet levels and the scheduled amortization of the Series 2007-1 notes, which began in February 2012, the Company expects to provide up to $75 million of additional enhancement in 2012 compared to 2011 levels.
Net cash generated by operating activities of $115.4 million for the three months ended March 31, 2012 was primarily the result of net income adjusted for depreciation expense, net of gains on sales of vehicles and income taxes.
Net cash used in investing activities was $193.5 million. The principal expenditure of cash from investing activities during the three months ended March 31, 2012 was for purchases of new revenue-earning vehicles, which totaled $583.6 million, partially offset by the sale of revenue-earning vehicles, which totaled $251.7 million. In addition, at March 31, 2012, restricted cash and investments decreased $139.7 million from December 31, 2011 primarily due to scheduled amortization payments on the Series 2007-1 notes. The Company also used cash for non-vehicle capital expenditures of $5.1 million. These expenditures consist primarily of airport facility improvements for the Company’s rental locations and information technology-related projects.
Net cash provided by financing activities was $61.3 million primarily due to $180.0 million in borrowings under the Series 2010-3 VFN and $60.1 million in proceeds from the issuance of the CAD 2012-1 notes. These borrowings were partially offset by $166.7 million of scheduled debt repayments on the Series 2007-1 notes , $7.8 million in deferred financing costs primarily associated with the issuance of the Revolving Credit Facility and $5.0 million to buy back Company shares under the share repurchase program.
The Company has significant requirements to maintain letters of credit and surety bonds to support its insurance programs, airport concession and other obligations. At March 31, 2012, the Company had $55.6 million in letters of credit, including $51.5 million in letters of credit under the Revolving Credit Facility, and $47.4 million in surety bonds to secure these obligations. At March 31, 2012, 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
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, 2011.
Asset-Backed Medium-Term Notes
The asset-backed medium-term note program at March 31, 2012 was comprised of $1.2 billion in asset-backed medium-term notes with maturities in 2012 through 2015. Borrowings under the asset-backed medium-term notes are secured by eligible vehicle collateral, among other things. The Series 2007-1 notes, of which $333.3 million remained outstanding at March 31, 2012, are floating rate notes that were previously effectively converted to fixed rate notes through the entry into swap agreements. In December 2011, the Company terminated its swap agreements related to the Series 2007-1 notes and paid a termination fee of $8.8 million to settle the liability. The remaining unamortized value of the hedge deferred in accumulated other comprehensive income (loss) on the balance sheet will be reclassified into earnings as interest expense over the remaining term of the related debt through July 2012. The Series 2011-1 notes, with a fixed blended interest rate of 2.81%, are comprised of $420 million principal amount Class A notes with a fixed interest rate of 2.51% and $80 million principal amount of Class B notes with a fixed interest rate of 4.38%. The Series 2011-2 notes of $400 million have a fixed interest rate of 3.21%. Proceeds from the asset-backed medium-term notes 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 $170.3 million at March 31, 2012.
The Series 2007-1 notes began scheduled amortization in February of 2012. During the first quarter of 2012, $166.7 million of principal payments were made with the remaining $333.3 million scheduled to be paid in equal installments through July 2012. The Series 2011-1 notes are expected to begin scheduled amortization in September 2014, and will amortize over a six-month period. The Series 2011-2 notes are expected to begin scheduled amortization in December 2014 and will amortize over a six-month period.
Variable Funding Notes
The variable funding notes at March 31, 2012 were comprised of $600 million in U.S. fleet financing capacity that may be drawn and repaid from time to time in whole or in part during the revolving period, which ends in September 2013.
The Series 2010-3 VFN of $600 million had borrowings of $180 million at March 31, 2012. 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 expected payment date in December 2013. 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 an interest rate of 1.57% at March 31, 2012. The Series 2010-3 VFN also has a facility fee commitment rate of up to 0.8% per annum on any unused portion of the facility.
Canadian Fleet Financing
On March 9, 2012, the Company completed the CAD Series 2012-1 notes totaling $150 million. These notes have a term of two years and require a program fee of 150 basis points above the one-month rate for Canadian dollar denominated bankers’ acceptances and a utilization fee of 65 basis points on the unused Series CAD 2012-1 amount. At March 31, 2012, CAD $60 million (US $60.1 million) of the CAD Series 2012-1 notes had been drawn. The CAD Series 2012-1 notes had an interest rate of 2.63% at March 31, 2012.
Revolving Credit Facility
On February 16, 2012, the Company terminated the existing senior secured credit facility and replaced it with a new $450 million Revolving Credit Facility that expires in February 2017. Pricing under the Revolving Credit Facility is grid-based with a spread above LIBOR that will range from 300 basis points to 350 basis points, based upon usage of the facility. Commitment fees under the Revolving Credit Facility will equal 50 basis points on unused capacity. Under the Revolving Credit Facility, the Company is subject to a maximum corporate leverage ratio of 3.0 to 1.0, a minimum corporate interest coverage ratio of 2.0 to 1.0 and a minimum corporate EBITDA requirement of $75 million. In addition, the Revolving Credit Facility contains covenants restricting its ability to undertake certain activities, including, among others, restrictions on the Company and its subsidiaries’ ability to incur additional indebtedness, make loans, acquisitions or other investments, grant liens on its property, dispose of assets, pay dividends or conduct stock repurchases, make capital expenditures or engage in certain transactions with affiliates.
Under the Revolving Credit Facility, the Company has the ability (subject to specified conditions and limitations), among other things, to incur up to $400 million of unsecured indebtedness; to enter into permitted acquisitions of up to $250 million in the aggregate during the term of the Revolving Credit Facility and to incur financing and assume indebtedness in connection therewith; to make investments in the Company’s U.S. special-purpose financing entities (including RCFC) and our Canadian special-purpose financing entities, in aggregate amounts at any time outstanding of up to $750 million and $150 million, respectively; and to make dividend, stock repurchase and other restricted payments in an amount up 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, 2012 and ending on the last day of the fiscal quarter immediately preceding the restricted payment. The Company had approximately $315 million available under the limitations of the Revolving Credit Facility for these restricted payments at March 31, 2012.
CONF CALL
Vicki Vaniman
Thank you. Good morning, and welcome to the Dollar Thrifty Automotive Group, Inc. First Quarter 2012 Earnings Release Conference Call. Scott Thompson, Chairman, President and Chief Executive Officer; and Cliff Buster, Chief Financial Officer, will be the hosts for today's call.
Some of the comments contained in this conference call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed in forward-looking statements due to many factors.
These factors include, among others, matters that Dollar Thrifty has noted in its latest earnings release and filings with the SEC. Dollar Thrifty undertakes no obligation to update or revise forward-looking statements.
Today, the company will use certain non-GAAP financial measures, all of which are reconciled with GAAP numbers and can be found in today's press release or posted to our company website at www.dtag.com under the Investor Info tab.
And now I would like to turn the call over to Scott to discuss our first quarter earnings.
Scott L. Thompson
Thank you, Vicki, and good morning, everyone. We're pleased to report not only another quarter of significant year-over-year improvement, but also the highest first quarter profit in the company's history. A strong used vehicle market combined with continued emphasis in the area of cost control, productivity initiatives, fleet utilization and balance sheet management enabled us to achieve these results in spite of a competitive rate environment.
Net income for 2012 first quarter was $40.4 million or $1.35 per diluted share compared to net income of $16.5 million or $0.53 per diluted share for the first quarter of 2011. This represents 155% increase in earnings per diluted share compared to the first quarter 2011.
We're also pleased to report adjusted -- corporate adjusted EBITDA for the first quarter of 2012 of $76.8 million compared to $36.3 million for the first quarter of 2011, 111% increase compared to prior year.
Revenue -- rental revenues for the first quarter of 2012 increased 2.1%, driven primarily by a 6.5% increase in rental base partially offset by a 4.2% decrease in revenue per day. We continue to be very pleased with the continued growth in the leisure travel volumes and the strong demand for our value-oriented product offering.
Revenue per unit, or RPU, totaled $1,115 per unit per month the first quarter 2012 compared to $1,131 per unit per month for the first quarter of 2011. We're more focused on RPU than RPV or total revenue. We believe that it's consistent with our return-on-asset approach and it's helpful when thinking about the appropriate fleet growth.
Fleet cost improvement was a substantial component in the escalation in profitability this quarter. Fleet cost per vehicle for the first quarter of 2012 declined to $136 per month compared to $251 per vehicle per month in the first quarter of 2011. Consistent with last quarter, our base depreciation rates continue to benefit from the ongoing strength in the used vehicle market. Additionally, during the first quarter of 2012, we realized gains on sale of risk vehicles of $14.3 million compared to $7.9 million in last year's first quarter.
Cliff will now review additional financial highlights for the quarter.
H. Clifford Buster
Thanks, Scott. Before I go through the financial highlights, I would like to address our diluted share count, which has been a bit complex. During the last 3 quarters of 2011, we highlighted that our diluted share count had increased significantly although there had been no significant equity grants since 2010. This was the result of the application of the treasury stock method for accounting purposes in computing diluted shares.
The diluted share count in 2011 increased due to 2 factors: Our inability to benefit from the tax deduction resulting from assumed stock option exercises due to the fact that the company was not a cash taxpayer in 2011, which effectively lowered the number of shares assumed to be repurchased under the treasury stock method; and secondly, the appreciation in our share price reduced the number of shares assumed to be repurchased from the proceeds of option exercises.
Based on tax regulation currently in effect and our current projections for significant pretax income for 2012, we now expect to be a cash taxpayer in 2012, although at a substantially lower rate than the statutory rate. Accordingly, or perhaps due to diluted EPS, we are now assuming the repurchase of shares related to the benefit of the tax deduction from stock option exercises.
Our revised EPS guidance for 2012 reflects the current company's current expectations that it will be a cash taxpayer in 2012 and that it will be able to benefit from the tax deduction on stock option exercises. The tax regulations change favorably with respect to bonus depreciation methods. It might negatively impact our diluted shares outstanding and positively impact our free cash flow in future periods.
Now turning to Table 1 in the press release. Rental revenues for the first quarter of 2012 were $339 million compared to $332 million in the first quarter of 2011, an increase of 2.1%. Our vehicle utilization for the quarter increased to 81% from 79.7% in the comparable prior year period.
Selling, general and administrative expenses in the first quarter of 2012 decreased $3.4 million from prior year levels as there were no merger-related expenses incurred in the first quarter of 2012 compared to $3.5 million of merger-related expenses incurred in the first quarter of 2011. Direct vehicle and operating expenses in the first quarter of 2012 increased $5.9 million compared to the first quarter of 2011, even though it was primarily impacted by higher maintenance expenses incurred in advance of the significant fleet refresh that will occur by June 30, combined with higher expenses for gasoline and toll road products. Increased cost for gasoline and toll road products are directly offset through higher ancillary sales revenue.
As a percentage of revenue, DV&O and SG&A were effectively flat with the prior year after excluding merger-related expenses in the prior year period.
Vehicle depreciation expense for the quarter decreased 43.7% from $74.2 million in the first quarter of 2011 to $41.7 million in the first quarter of 2012. The decrease is attributable to the factors Scott mentioned earlier on the call with respect to base depreciation rates and risk vehicle gains.
During the first quarter of 2012, the company sold approximately 14,400 risk vehicles at an average gain of $993 per vehicle compared to approximately 6,900 vehicles sold in the first quarter of 2011 at an average gain of $1,146 per vehicle.
Interest expense, net of interest income, totaled $17.1 million for the first quarter of 2012, down from $21 million for the same period last year.
Moving to key balance sheet items on Table 2 of the press release. Cash and cash equivalents totaled $492 million as of March 31, 2012, compared to $509 million as of December 31, 2011. Restricted cash totaled $214 million as of March 31, 2012, down from $353 million as of December 31, 2011. The decrease in both unrestricted and restricted cash is attributable to the seasonal investments in our rental fleet. Use of unrestricted cash for seasonal fleeting was partially offset by cash generated from operations and the releveraging of our Canadian fleet, which I will discuss momentarily.
Revenue-earning vehicles, net of depreciation, totaled $1.76 billion at March 31, 2012, an increase of approximately $290 million from December 31, 2011, levels. The increase in the book value of the fleet since year end is attributable to the seasonal fleet increases. The average fleet operated during the quarter was up 3.6% compared to the prior year period. Vehicle debt increased $73 million from December 31, 2011 to March 31, 2012, with vehicle debt now totaling $1.47 billion. The increase in vehicle debt resulted from borrowings to support seasonal fleet investments, our fleet refresh and the releveraging of our Canadian fleet.
Now turning to liquidity and capital resources. The seasonal fleet investments I previously mentioned were funded utilizing a combination of restricted cash, borrowings under our fleet financing facilities and unrestricted cash. As of March 31, we had excess cash enhancement in our securitization trust of approximately $30 million. As previously announced, during the quarter, we completed a new 5-year, $450 million revolving credit facility, providing the company with substantial operating flexibility and bolstering our already strong liquidity position. As of March 31, we had approximately $235 million of available capacity under the facility.
Additionally, during the quarter, we completed CAD $150 million fleet financing facility for purposes of financing our Canadian rental fleet and refinanced approximately $60 million of the rental fleet in Canada that was previously funded with excess cash.
Finally, as noted in our press release this morning, subsequent to March 31, we made the decision to reduce letters of credit outstanding for collateral enhancement in our securitization by approximately $145 million, utilizing a portion of our excess cash to meet the collateral enhancement requirements. This move allows us to reduce our corporate interest expense by approximately $6 million on an annualized basis.
We have the flexibility to releverage the fleet in order to return those funds to unrestricted cash for other needs through either borrowings under the revolving credit facility or future issuances of letters of credit.
As noted earlier in the call, we expect to be a cash taxpayer in 2012 although at a level substantially below the statutory rate for federal tax purposes. We currently expect approximately 40% of our book tax provision, which includes both federal and state taxes, will be paid on a current basis in 2012.
We ended the quarter with tangible net worth of $635 million and no corporate indebtedness. I will now turn the call back over to Scott.
Scott L. Thompson
Thank you, Cliff. Turning to merger activity. I'm aware that -- of Hertz's statements made during their earnings conference call, and I really have nothing to add to those statements. And if you have any questions, I suggest you direct those questions to Hertz. Now I'd like to briefly discuss our share repurchases.
As previously announced in February, we completed the repurchase of $100 million of the company's common stock, reducing our outstanding share count by approximately 1.45 million shares or 5% of the shares outstanding. Additionally, the company repurchased approximately $5 million of the company's common stock during March.
As of March 31, the company had remaining authorization of approximately $295 million through its board-approved share repurchase program. The company continues to evaluate all available options and methods, returning cash to shareholders while focusing on its long-term success of the company.
Turning to 2012 outlook. Based on our first quarter performance, current overall economic conditions, our expectations for continued strength in domestic used vehicle market and continued improvement in the leisure travel volumes, we have revised our 2012 full year guidance for diluted earnings per share to be within the range of $5 to $5.60. Additionally, we now expect corporate adjusted EBITDA for the full year of 2012 to be within the range of $285 million to $310 million.
In conclusion, this quarter, we continue to execute on our stand-alone plan, mainly highly focused on maximizing the company's return on assets. The low-cost operating structure and focus on fleet management, combined with our conservative management of our balance sheet, provided us the ability not only to compete effectively but to compete very profitably.
My thanks certainly goes out to our over 6,000 employees for their efforts every day in helping the company achieve its goals. Additionally, I'd like to thank our suppliers, strategic partners, lenders and shareholders for their ongoing support. That concludes our prepared remarks. Operator, would you open the call up for questions, please?
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Fund Letters
