Hertz 2010 Annual Report Download - page 96

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
of these agreements also require the maintenance of certain financial covenants. As of December 31,
2010, we were in compliance with all of these financial covenants.
Under the Senior Term Facility, the Hertz credit group is subject to financial covenants, including a
requirement to maintain a specified leverage ratio and a specified Corporate EBITDA to interest
coverage ratio for specified periods. Under the Senior ABL Facility, if the borrowers fail to maintain a
specified minimum level of borrowing base availability, the Hertz credit group will then be subject to
financial covenants under such facility, including a specified debt to Corporate EBITDA leverage ratio
and a specified fixed charge coverage ratio. The ‘‘Hertz credit group’’ refers to Hertz and its subsidiaries.
As of December 31, 2010, Hertz was required under the Senior Term Facility to have a leverage ratio of
not more than 4.75:1 and an interest coverage ratio of not less than 2.25:1. In addition, under our Senior
ABL Facility, if there was less than $200.0 million of available borrowing capacity under that facility as of
December 31, 2010, Hertz was required to have a leverage ratio of not more than 4.75:1 and a fixed
charge coverage ratio of not less than 1:1 for the four quarters most recently ended. Under the Senior
Term Facility, as of December 31, 2010, we had a leverage ratio of 4.42:1 and an interest coverage ratio
of 3.50:1. Our leverage ratio as of December 31, 2010 has increased over the prior year as a result of the
timing of corporate debt issuances in late 2010 which were used to redeem other corporate debt in early
2011. Since we had maintained sufficient borrowing capacity under our Senior ABL Facility as of
December 31, 2010, and expect to maintain such capacity in the future, the fixed charge coverage ratio
was not deemed relevant for presentation. ‘‘EBITDA’’ means consolidated net income before net interest
expense, consolidated income taxes and consolidated depreciation and amortization and ‘‘Corporate
EBITDA’’ means ‘‘EBITDA’’ as that term is defined under Hertz’s Senior Credit Facilities, which is
generally consolidated net income before net interest expense (other than interest expense relating to
certain fleet debt), consolidated income taxes, consolidated depreciation (other than depreciation
related to the car rental fleet) and amortization and before certain other items, in each case as more fully
described in the agreements governing Hertz’s Senior Credit Facilities. In addition to the borrowings
under our Senior Credit Facilities, we have a significant amount of additional debt outstanding. For
further information on the terms of our Senior Credit Facilities as well as our significant amount of debt
outstanding, see Note 4 to the Notes to our consolidated financial statements included in this Annual
Report under caption ‘‘Item 8—Financial Statements and Supplementary Data.’’ For a discussion of the
risks associated with our significant indebtedness, see ‘‘Item 1A—Risk Factors’’ in this Annual Report.
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