Hertz 2007 Annual Report Download - page 188

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
dealer managers and solicitation agents for Hertz’s tender offers for its existing debt securities in
connection with the Acquisition. See Note 3—Debt.
Other Sponsor Relationships
In connection with our car and equipment rental businesses, we enter into millions of rental transactions
every year involving millions of customers. In order to conduct those businesses, we also procure goods
and services from thousands of vendors. Some of those customers and vendors may be affiliated with
the Sponsors or members of our Board of Directors. We believe that all such rental and procurement
transactions have been conducted on an arms-length basis and involved terms no less favorable to us
than those that we believe we would have obtained in the absence of such affiliation. It is our
management’s practice to bring to the attention of our Board of Directors any transaction, even if it arises
in the ordinary course of business, in which our management believes that the terms being sought by
transaction participants affiliated with the Sponsors or our Directors would be less favorable to us than
those to which we would agree absent such affiliation.
In the second quarter of 2007, we were advised by Merrill Lynch & Co., an affiliate of one of our
Sponsors, that between November 17, 2006, and April 19, 2007, Merrill Lynch & Co., or ‘‘ML,’’ engaged
in principal trading activity in our common stock. Some of those purchases and sales of our common
stock should have been reported to the Securities and Exchange Commission on Form 4, but were not
so reported. ML and certain of its affiliates have engaged in additional principal trading activity since that
time. ML and certain of its affiliates have since filed amended or additional reports on Form 4 disclosing
the current number of shares of our common stock held by ML and its affiliates. To date, ML has paid to
us approximately $4.8 million for its ‘‘short-swing’’ profit liability resulting from its principal trading activity
that is subject to recovery by us under Section 16 of the Securities Exchange Act of 1934, as amended.
In the event that ML or its affiliates (including private investment funds managed by certain private
equity-arm affiliates of ML) sell additional shares of our common stock in the future, this amount may
change. We recorded $2.9 million, which is net of tax of $1.9 million, in our consolidated balance sheet in
‘‘Additional paid-in capital.’’ In addition, because ML may be deemed to be an affiliate of Hertz Holdings
and there was no registration statement in effect with respect to its sale of shares during this period,
certain of these sales may have been made in violation of Section 5 of the Securities Act of 1933, as
amended.
Note 15—Earnings (Loss) Per Share
As a result of the Acquisition, our capital structure initially consisted of 229,500,000 shares of common
stock outstanding. Earnings per share for the Successor period ended December 31, 2005 and the
Predecessor period ended December 20, 2005 reflect our initial post-Acquisition capital structure. See
Note 1—Summary of Significant Accounting Policies—Background and Change in Ownership—Initial
and Secondary Public Offering and Note 5—Hertz Holdings Stock Incentive Plan for a discussion of
subsequent capital structure changes. Basic earnings per share have been computed based upon the
weighted average number of common shares outstanding. Diluted earnings per share have been
computed based upon the weighted average number of common shares outstanding plus the effect of
all potentially dilutive common stock equivalents.
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