Hertz 2007 Annual Report Download - page 105

Our primary use of cash in investing activities is for the acquisition of revenue earning equipment, which
consists of cars and equipment. Net cash used in investing activities during the year ended
December 31, 2007 was $2,343.6 million, an increase of $65.4 million from the year ended December 31,
2006. The increase is primarily due to a decrease in proceeds from the disposal of revenue earning
equipment, partly offset by a decrease in the year-over-year net change in restricted cash and a
decrease in revenue earning equipment expenditures. For the year ended December 31, 2007, our
expenditures for revenue earning equipment were $11,342.1 million, partially offset by proceeds from
the disposal of such equipment of $9,214.3 million. These assets are purchased by us in accordance
with the terms of programs negotiated with the car and equipment manufacturers.
For the year ended December 31, 2007, our expenditures for property and non-revenue earning
equipment were $196.0 million. For the year ended December 31, 2007, we experienced a level of net
expenditures for revenue earning equipment and property and equipment slightly higher than our net
expenditures for the year ended December 31, 2006. This increase was due to a year-over-year
decrease in disposal proceeds relating to revenue earning equipment, partly offset by decreases in
year-over-year expenditures for both revenue earning equipment and property and equipment. For
2008, we expect the level of net expenditures for revenue earning equipment, property and non-revenue
earning equipment to be similar to that of 2007. See ‘‘—Capital Expenditures’’ below.
Our car rental and equipment rental operations are seasonal businesses with decreased levels of
business in the winter months and heightened activity during the spring and summer. This is particularly
true of our airport car rental operations and our equipment rental operations. To accommodate
increased demand, we maintain a larger fleet by holding vehicles and equipment and purchasing
additional fleet which increases our financing requirements in the second and third quarters of the year.
These seasonal financing needs are funded by increasing the utilization of our bank credit facilities and
the variable funding notes portion of our U.S. Fleet Debt facilities and, in past years, our commercial
paper program. As business demand moderates during the winter, we reduce our fleet accordingly and
dispose of vehicles and equipment. The disposal proceeds are used to reduce debt.
We are highly leveraged and a substantial portion of our liquidity needs arise from debt service on
indebtedness incurred in connection with the Transactions and from the funding of our costs of
operations, working capital and capital expenditures.
As of December 31, 2007, we had approximately $11,960.1 million of total indebtedness outstanding.
Cash paid for interest during the year ended December 31, 2007, was $814.1 million, net of amounts
capitalized.
We rely significantly on asset-backed financing to purchase cars for our domestic and international car
rental fleets. For further information concerning our asset-backed financing programs, see ‘‘—Fleet
Financing’’ below. For a discussion of risks related to our reliance on asset-backed financing to
purchase cars, see ‘‘Item 1A—Risk Factors—Risks Related to Our Business—Our reliance on asset-
backed financing to purchase cars subjects us to a number of risks, many of which are beyond our
control.’’
Also, substantially all of our revenue earning equipment and certain related assets are owned by special
purpose entities, or are subject to liens in favor of our lenders under the Senior ABL Facility, the ABS
Program, the International Fleet Debt facilities or the fleet financing facility relating to our car rental fleet in
Hawaii, Kansas, Puerto Rico and St. Thomas, the U.S. Virgin Islands, Brazil, Canada, Belgium and our
U.K. leveraged financing, all as described in more detail below. Substantially all our other assets in the
United States are also subject to liens in favor of our lenders under the Senior Credit Facilities, and
substantially all of our other assets outside the United States are (with certain limited exceptions) subject
to liens in favor of our lenders under the International Fleet Debt facilities or (in the case of our Canadian
HERC business) the Senior ABL Facility. None of such assets will be available to satisfy the claims of our
general creditors.
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