Hertz 2008 Annual Report Download - page 113

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
operations, working capital and capital expenditures. Based on December 31, 2008 availability and our
2009 business plan, we believe we have sufficient liquidity in our existing fleet facilities to meet our 2009
debt maturities. We are beginning discussions with banks and lenders to review refinancing options for
the indebtedness maturing in 2010. The agreements governing our indebtedness require us to comply
with two key covenants based on a consolidated leverage ratio and a consolidated interest expense
coverage ratio. These covenants are described further in ‘‘Results of Operations’’ and Note 3 to the
Notes to our consolidated financial statements included in this Annual Report under caption ‘‘Item 8—
Financial Statements and Supplemental Data.’’ Our failure to comply with the obligations contained in
any agreements governing our indebtedness could result in an event of default under the applicable
instrument, which could result in the related debt becoming immediately due and payable and could
further result in a cross default or cross acceleration of our debt issued under other instruments.
In response to the economic downturn, in 2008 we implemented aggressive strategic actions to reduce
costs and improve liquidity. These actions included reducing wage and benefit costs through significant
headcount reductions, accelerating fleet deletions and delaying additions to right-size the fleet to current
demand levels and rationalizing our location footprint by closing a number of locations. We have
developed additional plans for 2009 in an effort to mitigate the impact of continued revenue declines on
our results of operations, including further reducing costs through the recently announced additional
headcount reductions, continuing to right-size our car and equipment rental fleet in response to the
economic conditions, continued reengineering of our processes to reduce costs, increasing pricing and
continuing to reduce the cost of acquiring our car and equipment rental fleet, among other actions.
We believe these actions will enhance our liquidity going forward. As of December 31, 2008, we had
approximately $4.8 billion of liquidity, comprised of $0.6 billion in unrestricted cash, $1.3 billion in
unfunded corporate debt capacity and $2.9 billion in unfunded fleet debt capacity. Taking into
consideration the borrowing base limitations in our Senior ABL Facility and in our Fleet Debt, the amount
that we had available for immediate use as of December 31, 2008 under our Senior ABL Facility was
$1.3 billion and we had $0.2 billion of over-enhancement that was available under our Fleet Debt, as well
as the $0.6 billion in unrestricted cash. Future availability of borrowings under these facilities will depend
on borrowing base requirements and other factors, many of which are outside our control.
As of December 31, 2008, we had approximately $10,972.3 million of total indebtedness outstanding.
Cash paid for interest during the year ended December 31, 2008, was $764.0 million, net of amounts
capitalized.
A significant number of cars that we purchase are subject to repurchase by car manufacturers under
contractual repurchase or guaranteed depreciation programs. Under these programs, car
manufacturers agree to repurchase cars at a specified price or guarantee the depreciation rate on the
cars during a specified time period, typically subject to certain car condition and mileage requirements.
We use this specified price or guaranteed depreciation rate to calculate our asset-backed financing
capacity. If any manufacturer of our cars fails to fulfill its repurchase or guaranteed depreciation
obligations, due to bankruptcy or otherwise, our asset-backed financing capacity could be decreased,
or we may be required to materially increase the enhancement levels regarding the fleet vehicles
provided by such bankrupt manufacturer under certain of our Fleet Financing Facilities. For a discussion
of risks related to the repurchase of program cars from us or the guarantee of the depreciation rate of
program cars by the manufacturers of our cars, see ‘‘Item 1A—Risk Factors—Risks Related to Our
Business—We face risks related to decreased acquisition or disposition of cars through repurchase and
guaranteed depreciation programs.’’ In addition for a discussion of the risks associated with a
manufacturer’s bankruptcy or our reliance on asset-backed financing, see ‘‘Item 1A—Risk Factors—
93