Dollar Rent A Car 2007 Annual Report Download - page 44

downgrading of the Monolines has limited access to this market in 2008. The Company has experienced
increases in the level of credit enhancement or additional collateral required for new asset backed
medium term notes, the Commercial Paper Program and the Conduit Facility. The Company expects
additional increases in the level of credit enhancement for the Commercial Paper Program and Conduit
Facility when renewed in 2008. These increased enhancement and collateral requirements have reduced
the liquidity available for other corporate purposes. The Company believes it has sufficient resources to
meet these credit enhancement requirements.
Cash used in investing activities was $446.3 million. The principal use of cash in investing activities was
the purchase of revenue-earning vehicles, which totaled $4.0 billion. This use of cash was primarily offset
by $3.4 billion in proceeds from the sale of used revenue-earning vehicles. 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. Fleet levels are the lowest in the first and fourth quarters
when rental demand is at a seasonal low. Restricted cash at December 31, 2007 decreased $256.8
million from the previous year, including $270.8 million used for vehicle financing partially offset by
interest income earned on restricted cash and investments of $14.0 million. The Company expects to
continue to fund its revenue-earning vehicles with cash provided from operations and increased secured
vehicle financing. The Company also used cash for non-vehicle capital expenditures of $40.6 million.
These expenditures consist primarily of airport facility improvements for the Company’s rental locations
and investments in IT equipment and systems. The Company estimates non-vehicle capital expenditures
to be approximately $40 million in 2008 as a result of increased airport facility projects and more
significant upgrades in IT equipment and systems. In addition, the Company used cash for franchise
acquisitions of $30.3 million in 2007 and will continue to pursue the acquisition of certain franchise
operations, subject to Revolving Credit Facility restrictions. Future franchisee acquisition expenditures
are expected to be financed with available cash and cash to be provided from future operations.
Cash used in financing activities was $182.0 million primarily due to a decrease of $413.0 million under
the Conduit Facility (hereinafter defined), the maturity of asset backed medium term notes totaling $312.5
million, a net decrease in the issuance of commercial paper totaling $153.1 million and share repurchases
totaling $71.5 million. Cash used in financing activities was partially offset by the issuance of $500 million
in asset backed medium term notes in May 2007, the proceeds of the $250 million Term Loan (hereinafter
defined) in June 2007, and an increase of $42.1 million in other existing bank vehicle lines of credit.
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 Like-Kind Exchange Program has
resulted in a material deferral of federal and state income taxes for fiscal years beginning in 2002 and
extending through the year ended December 31, 2007. The benefit of the deferral is dependent on timely
reinvestment of vehicle disposition proceeds in replacement vehicles; therefore, a downsizing of the
Company’s fleet or reduced vehicle purchases could result in reduced deferrals and increased payments
of federal and state cash income taxes, after considering the effect of net operating loss carryforwards.
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, 2007, restricted cash and investments totaled $132.9 million and are restricted for the
acquisition of revenue-earning vehicles and other specified uses as defined under asset backed financing
programs, the Canadian fleet securitization partnership program 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.
In February 2008, President Bush signed the Economic Stimulus Act of 2008 into law which includes a
provision allowing bonus depreciation on certain assets, including vehicles, acquired in 2008. The
Economic Stimulus Act of 2008 will increase the amount of tax basis depreciation that can be claimed on
the Company’s federal and on some state tax returns.
Share Repurchase Program
On February 9, 2006, the Company announced that its Board of Directors had authorized a $300 million
share repurchase program, which will extend through December 31, 2008, to replace the $100 million
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