Hertz 2010 Annual Report Download - page 95

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
As a result of our successful refinancing efforts in 2009 and 2010 and the strategic cost reduction actions
taken in the past, we believe that we will remain in compliance with our debt covenants and that cash
generated from operations, together with amounts available under various facilities will be adequate to
permit us to meet our debt service obligations, ongoing costs of operations, working capital needs and
capital expenditure requirements for the next twelve months.
For further information on our indebtedness, see Note 4 to the Notes to our consolidated financial
statements included in this Annual Report under the caption ‘‘Item 8—Financial Statements and
Supplementary Data.’’
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 book values derived from this specified price or guaranteed depreciation rate to calculate
financing capacity under certain asset-backed and asset-based financing arrangements.
In the event of a bankruptcy of a car manufacturer, our liquidity would be impacted by several factors
including reductions in fleet residual values and the risk that we would be unable to collect outstanding
receivables due to us from such bankrupt manufacturer. In addition, the program cars manufactured by
any such company would need to be removed from our fleet or re-designated as non-program vehicles,
which would require us to furnish additional credit enhancement associated with these program
vehicles. For a discussion of the risks associated with a manufacturer’s bankruptcy or our reliance on
asset-backed and asset-based financing, see ‘‘Item 1A—Risk Factors’’ included in this Annual Report.
We rely significantly on asset-backed and asset-based financing arrangements to purchase cars for our
domestic and international car rental fleet. The amount of financing available to us pursuant to these
programs depends on a number of factors, many of which are outside our control, including recently
adopted legislation, proposed SEC rules and regulations and other legislative and administrative
developments. In this regard, there has been uncertainty regarding the potential impact of recently
proposed SEC rules and regulations governing the issuance of asset-backed securities and additional
requirements contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act. While we
will continue to monitor these developments and their impact on our ABS program, the SEC rules and
regulations, once adopted and implemented, may impact our ability and/or desire to engage in asset-
backed financings in the future. For further information concerning our asset-backed financing
programs and our indebtedness, see Note 4 to the Notes to our consolidated financial statements
included in this Annual Report under the caption ‘‘Item 8—Financial Statements and Supplementary
Data.’’ For a discussion of the risks associated with our reliance on asset-backed and asset-based
financing and the significant amount of indebtedness, see ‘‘Item 1A—Risk Factors’’ in this Annual
Report.
Covenants
Certain of our debt instruments and credit facilities contain a number of covenants that, among other
things, limit or restrict the ability of the borrowers and the guarantors to dispose of assets, incur
additional indebtedness, incur guarantee obligations, prepay certain indebtedness, make certain
restricted payments (including paying dividends, redeeming stock or making other distributions), create
liens, make investments, make acquisitions, engage in mergers, fundamentally changing the nature of
their business, make capital expenditures, or engage in certain transactions with certain affiliates. Some
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