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Innovation…Driving Global Growth
2008 Annual Report

Table of contents

  • Page 1
    Innovation...Driving Global Growth 2008 Annual Report

  • Page 2
    ... year, generated strong fourth quarter cash ï¬,ow and maintained solid liquidity. The introduction of cost-saving and service-enhancing innovations, combined with a comprehensive, global efficiency focus since 2007, enabled Hertz to outperform the competition and set the stage for accelerated, pro...

  • Page 3
    ...Full year 2008 diluted loss per share of $3.74. l l l l Letter to Shareholders page 2 page 16 Board of Directors and Officers Hertz Management Team Shareholder Information IBC IBC *Indicates a Non-GAAP measurement presented and reconciled within the section of the Annual Report to Stockholders...

  • Page 4
    ...and Europe to speed the rental process. We implemented a 10-minute Service Guarantee for customers who complete our online check-in process at our new "Best-in-Class" rated reservation website. We upgraded NeverLost, the industry leader in onboard satellite navigation systems, to include online trip...

  • Page 5
    ... Shanghai. We launched Connect by Hertz, our car sharing program in London, New York City and Paris, with plans to rapidly expand to other large urban markets, universities and corporate accounts in 2009. We expanded Simply Wheelz, our car rental program for price-oriented leisure travelers, to six...

  • Page 6
    ..., Hertz has over 8,500 locations in 141 countries, the only car and equipment rental company with a truly global footprint. Approximately one-third of our revenue is generated outside of the United States, and revenue from international travelers renting from Hertz in the U.S. increased 15% in 2008...

  • Page 7
    ...only car rental company with locations on six continents. Our network of corporate and licensee locations serve local and international leisure and business customers who have come to trust Hertz to provide an optimal rental experience wherever their travels take them. HERC serves customers in North...

  • Page 8
    Global Travel Outlook and Equipment Rental Opportunities l Our knowledge of global car and equipment rental markets enables us to spot consumer trends early and supply new products and services as demand emerges across the global rental network. 6 Innovation...Driving Global Growth

  • Page 9
    ... meeting head-on every day. Our customers can now rent a vehicle from one hour to more than one year. We introduced Connect by Hertz, our car sharing program, to provide hourly rentals to a diverse customer base. We also offer multi-month rentals to ex-patriots or drivers looking for alternatives to...

  • Page 10
    Significantly Increased Lower Emission Vehicles l As demand for sustainable travel options grows, Hertz is in the forefront providing rental programs and vehicle options, which provide convenience, cost effectiveness and environmental consciousness. 8 Innovation...Driving Global Growth

  • Page 11
    ... expand Connect to many more U.S. and European cities, and additional university and corporate customers. Industry-leading service and innovations enabled Hertz to garner 25 "Best Car Rental Company" awards worldwide from travel publications and associations who surveyed their readers and members...

  • Page 12
    Customer Controlled Rental Experience l Hertz took innovation to a new level in 2008. We led the industry with a wide range of service-related initiatives and our innovation helped improve operational efficiency. With the introduction of car sharing technology, we launched a rental process that ...

  • Page 13
    ... for our new pre-paid rental discount program, and a mobile device website which has generated over $1 million of revenue last year. On-line check-in providing a "Gold Experience" for non- #1 Club Gold Customers, with cell phone and mobile device check-in capability. We are currently processing over...

  • Page 14
    ... efficiency initiatives in 2008 included: l l l l Transporter Efficiency: Reduced wasted time and non-value added processes in our on-location and off-location vehicle movement practices. Savings: $18 million Claims Management: Centralized claims handling resulted in reduced costs, higher...

  • Page 15
    ... and functional areas. We have trained more than 13,000 employees in the basics of HIP at 634 locations worldwide. We emphasize "Best-in-Class" process improvements which can be replicated globally, and have generated over $80 million of savings worldwide. Innovation...Driving Global Growth...

  • Page 16
    ... vehicle sales channels including website sales in five European countries and the U.S. Rent2Buy program, allowing customers to buy their rental car directly from Hertz. Aggressively de-ï¬,eeting equipment as volume deteriorated, and sensibly aging the HERC ï¬,eet from 30 to 36 months. HERC...

  • Page 17
    ...costs. From negotiating annual ï¬,eet plans, which provide maximum savings and ï¬,exibility, to reducing maintenance time, to achieving optimal ï¬,eet disposition results, Hertz has made great progress managing its largest expense area. Efficiency and quality are mutually supportive. In 2008, Hertz...

  • Page 18
    ... Chief Financial Officer Joseph R. Nothwang Executive Vice President and President, Vehicle Rental and Leasing, The Americas and Pacific Gerald A. Plescia Executive Vice President and President, Hertz Equipment Rental Corporation Michel Taride Executive Vice President and President, Hertz Europe...

  • Page 19
    ..., and telephone number, including area code, of registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, Par Value $0.01 per share Name of each exchange on which registered New York Stock Exchange Securities registered...

  • Page 20
    ... STATEMENTS OF CASH FLOWS ...NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ...CONTROLS AND PROCEDURES ...OTHER INFORMATION ...DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ...EXECUTIVE COMPENSATION...

  • Page 21
    ... handling equipment rental business, (v) ''cars'' means cars and light trucks (including sport utility vehicles and, outside North America, light commercial vehicles), (vi) ''program cars'' means cars purchased by car rental companies under repurchase or guaranteed depreciation programs with car...

  • Page 22
    ... cost savings and opportunities to increase productivity and profitability; • income and margins; • liquidity and availability to us of additional or continued sources of financing for our revenue earning equipment; • financial instability of insurance companies providing financial guarantees...

  • Page 23
    ... Annual Report about the car and equipment rental industries, including our general expectations concerning the industries and our market position and market share, are based in part on industry data and forecasts obtained from industry publications and surveys and internal company surveys. Third...

  • Page 24
    ...we have company-operated locations and data regarding car rental concessionaire activity is available. We believe that we also maintain the second largest market share, by revenues, in the off-airport car rental market in the United States. In our equipment rental business segment, we rent equipment...

  • Page 25
    ... the United States) or one or more special purpose entities, as the case may be, and, rental equipment and related assets of certain of our subsidiaries organized outside North America or one or more special purpose entities, as the case may be, which facilities (together with certain capital lease...

  • Page 26
    ... in the global car rental industry and in the equipment rental industry. Worldwide Car Rental We believe that the global car rental industry exceeds $35 billion in annual revenues. According to a 2008 report appearing in Auto Rental News, car rental revenues in the United States are estimated to...

  • Page 27
    ...portion of the industry has rental volume primarily driven by local business use, leisure travel and the replacement of cars being repaired. Because Europe has generally demonstrated a lower historical reliance on air travel, the European off-airport car rental market is significantly more developed...

  • Page 28
    ... United States 64.6% International 35.4% 26FEB200920363836 (1) 26FEB200920364096 Other Equipment 25.2% Car rental segment revenue includes fees and certain cost reimbursements from licensees. See Note 9 to the Notes to our consolidated financial statements included in this Annual Report under...

  • Page 29
    ...customers of airport concession fees and vehicle licensing costs, fueling charges, and charges for ancillary customer products and services such as supplemental equipment (child seats and ski racks), loss or collision damage waiver, theft protection, liability and personal accident/effects insurance...

  • Page 30
    ...locations in New York, London, Paris and Park Ridge, N.J. Connect by Hertz allows customers to sign up for the service and start renting cars by the hour. Customers pay an annual or monthly membership fee, pick up cars in locations scattered around a city without checking in at a Hertz rental office...

  • Page 31
    ...leisure and business traveler customers and by increasing penetration of the insurance replacement market, of which we currently have a low market share. In the United States during the year ended December 31, 2008, approximately one-third of our rental revenues at off-airport locations were related...

  • Page 32
    ... truck rental activities in Germany and our car leasing activities in Brazil and Australia are treated as part of our international car rental business in our consolidated financial statements. Our worldwide car rental segment generated $6,858.2 million in revenues and $385.3 million in loss before...

  • Page 33
    ..., travel companies and other groups whose members, participants and customers rent cars for either business or leisure purposes. A specialized sales force calls on companies with replacement rental needs, including insurance and leasing companies and car dealers. We also advertise our car rental...

  • Page 34
    ... that may be used to pay rental charges, mostly for prepaid and tour-related rentals. In addition, where the law requires us to do so, we rent cars on a cash basis. For the year ended December 31, 2008, no customer accounted for more than 2.0% of our car rental revenues. In the United States for the...

  • Page 35
    ... holding period requirements. Repurchase prices under repurchase programs are based on either a predetermined percentage of original car cost and the month in which the car is returned or the original capitalized cost less a set daily depreciation amount. Guaranteed depreciation programs guarantee...

  • Page 36
    ... our high-quality service, cost control, fleet utilization, yield management, competitive pricing and our ability to offer one-way rentals. However, in certain predominantly smaller U.S. and international markets, we have found it more efficient to utilize independent licensees, which rent cars that...

  • Page 37
    ..., management and administrative assistance and training, reservations through our reservations channels, the Hertz #1 Club and #1 Club Gold programs, our ''Rent-it-Here/ Leave-it-There'' one-way rental program and other services. In addition to car rental, certain licensees outside the United States...

  • Page 38
    ... the second largest market share, by revenues, in the off-airport car rental market in the United States. In the three years ended December 31, 2008, we increased the number of our off-airport rental locations in the United States by approximately 20% to approximately 1,645 locations. Revenues from...

  • Page 39
    ... the Hertz brand and our extensive worldwide ownership of car rental operations provide us with a competitive advantage. Worldwide Equipment Rental Operations We, through HERC, operate an equipment rental business in the United States, Canada, France, Spain and China. On the basis of total revenues...

  • Page 40
    ..., 2008, we added four locations related to external acquisitions done within our domestic and international equipment rental operations. These acquisitions give us greater control over our growth both in the United States and internationally and an expanded array of services across the Hertz network...

  • Page 41
    ... disposes of its used equipment through a variety of channels, including private sales to customers and other third parties, sales to wholesalers, brokered sales and auctions. Licensees HERC licenses the Hertz name to equipment rental businesses in eight countries in Europe and the Middle East. The...

  • Page 42
    ..., property damage, general liability and product liability, but not the underwriting of risks. HCM conducts business at five regional offices in the United States. Separate subsidiaries of ours conduct similar operations in eight countries in Europe. Seasonality Generally, car rental and equipment...

  • Page 43
    ... 31, 2008, we employed approximately 24,900 persons, consisting of 16,700 persons in our U.S. operations and 8,200 persons in our international operations. Employee benefits in effect include group life insurance, hospitalization and surgical insurance, pension plans and a defined contribution plan...

  • Page 44
    ... equipment rental operations, as well as financial and reservations-related positions in our U.S. service center in Oklahoma City, Oklahoma. During 2007, we began to implement cost saving initiatives in our European operations, and we continued implementation of these measures in 2008. Additionally...

  • Page 45
    ...-road equipment (vehicle liability); • legal liability to members of the public and employees from other causes (general liability/ workers' compensation); and • risk of property damage and/or business interruption and/or increased cost of working as a consequence of property damage. In addition...

  • Page 46
    ... in Ireland, and Hertz International RE Limited, or ''HIRE,'' a reinsurer organized in Ireland. In European countries with company-operated locations, we have purchased from Probus the vehicle liability insurance required by law, and Probus reinsured the risks under such insurance with HIRE through...

  • Page 47
    ... applicable rental agreement or applicable law would not, absent the arrangements just described, impose vehicle liability on us. In both our domestic car rental operations and our company-operated international car rental operations in many countries, we offer optional products providing insurance...

  • Page 48
    ... or loss (including loss through theft) of rented vehicles or equipment. We generally offer an optional rental product, known in various countries as ''loss damage waiver,'' ''collision damage waiver,'' ''theft protection'' or ''accident excess reduction,'' under which we waive or limit our right to...

  • Page 49
    ... such expenses or related natural resource damages for which we may be held responsible could be substantial. The probable losses that we expect to incur for such matters have been accrued, and those losses are reflected in our consolidated financial statements. As of December 31, 2008 and 2007, the...

  • Page 50
    ... that we offer. Some states (including California, New York, Nevada and Illinois) regulate the price at which we may sell loss or damage waivers, and many state insurance regulators have authority over the prices and terms of the optional insurance coverage we offer. See ''-Risk Management'' above...

  • Page 51
    ... owned all of Hertz's outstanding common stock. As a result of our initial public offering in 2006 and the June 2007 secondary offering, investment funds associated with or designated by the Sponsors currently own approximately 55% of Hertz Holdings' outstanding common stock. Set forth below are...

  • Page 52
    ... reliance on asset-backed financing to purchase cars subjects us to a number of risks, many of which are beyond our control.'' Available Information We file annual, quarterly and current reports and other information with the United States Securities and Exchange Commission, or the ''SEC.'' You may...

  • Page 53
    ... volatile fuel prices. During 2008, this resulted in a rapid decline in the volume of car rental and equipment rental transactions, an increase in depreciation and fleet related costs as a percentage of revenue, lower industry pricing and lower residual values for the non-program cars and equipment...

  • Page 54
    ...fleet related costs as a percentage of revenue, lower industry pricing and lower residual values for the non-program cars and equipment that we sold. Our business is highly seasonal. Certain significant components of our expenses, including minimum concession fees, real estate taxes, rent, insurance...

  • Page 55
    ... result of limited supplies of competitively priced cars. We believe we are one of the largest private sector purchasers of new cars in the world for our rental fleet, and as of December 31, 2008, our approximate average holding period for a rental car was twelve months in the United States and nine...

  • Page 56
    ... 31, 2008, consisted of program cars. Accordingly, we are now bearing increased risk relating to the residual market value and the related depreciation on our car rental fleet and must use different rotational techniques to accommodate our seasonal peak demand for cars. Repurchase and guaranteed...

  • Page 57
    ... us to sustain a loss on the ultimate sale of non-program cars, on which we bear the risk of such declines in residual value, or require us to depreciate those cars on a more rapid basis while we own them. A decline in the economic and business prospects of car manufacturers, including any economic...

  • Page 58
    ... if we are successful in our cost reduction initiatives, we may face other risks associated with our plans, including declines in employee morale or the level of customer service we provide, the efficiency of our operations or the effectiveness of our internal controls. Any of these risks could have...

  • Page 59
    ... of our car rental business relies. In addition, significant increases in fuel prices or reduction in fuel supplies could negatively impact our equipment rental business by increasing the cost of buying new equipment, since fuel is used in the manufacturing process and in delivering equipment to us...

  • Page 60
    ...on information technology systems to accept reservations, process rental and sales transactions, manage our fleets of cars and equipment, account for our activities and otherwise conduct our business. We have centralized our information technology systems in two redundant facilities in Oklahoma City...

  • Page 61
    ... property rights that cover or affect software products and other components of information technology systems that we rely on to operate our business. For example, Enterprise has previously asserted that certain systems we use to conduct insurance replacement rentals would infringe on patent rights...

  • Page 62
    ... risks related to liabilities and insurance. Our businesses expose us to claims for personal injury, death and property damage resulting from the use of the cars and equipment rented or sold by us and for workers' compensation claims and other employment-related claims by our employees. Currently...

  • Page 63
    ...to our independent registered public accounting firm in the ordinary course of business. In July 2005, the Division of Enforcement of the SEC informed us that it was conducting an informal inquiry and asked Hertz to voluntarily provide documents and information related to car rental services that we...

  • Page 64
    ...Australia, we have discontinued sales of insurance products there. See ''Item 1-Business-Risk Management'' for further discussion regarding how changes in the regulation of insurance intermediaries may affect us internationally. Laws in many countries and jurisdictions limit the types of information...

  • Page 65
    ... charge car renters, either through direct price regulation or a requirement that we disregard a customer's source market (location or place of residence) for rate purposes, could reduce our revenues or increase our expenses. We set rates based on a variety of factors including the sources of rental...

  • Page 66
    ...if such opportunity might reasonably have been expected to be of interest to us or our subsidiaries. See Note 14 to the Notes to our consolidated financial statements included in this Annual Report under caption ''Item 8-Financial Statements and Supplemental Data.'' Risks Relating to Our Substantial...

  • Page 67
    .... If new debt is added to our current debt levels, the related risks that we now face would increase. In addition, the instruments governing our indebtedness do not prevent us or our subsidiaries from incurring obligations that do not constitute indebtedness. On June 30, 2006, Hertz Holdings entered...

  • Page 68
    ... financing to purchase cars subjects us to a number of risks, many of which are beyond our control. We rely significantly on asset-backed financing to purchase cars for our domestic and international car rental fleets. In connection with the Acquisition, a bankruptcy-remote special purpose entity...

  • Page 69
    ... to finance new car acquisitions through asset-backed financing on favorable terms, or at all. Our asset-backed financing capacity could be decreased, our financing costs and interest rates could be increased, or our future access to the financial markets could be limited, as a result of risks and...

  • Page 70
    ... and competitive conditions and to the financial and business risk factors, many of which may be beyond our control, as described under ''-Risks Related to Our Business'' above. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay...

  • Page 71
    ... a portion of our assets being unavailable to satisfy the claims of our unsecured indebtedness. Furthermore, many of the subsidiaries that hold our U.S. and international car rental fleets in connection with our asset-backed financing programs are intended to be bankruptcy remote and the assets held...

  • Page 72
    ... conditions and to financial, market and competitive factors, many of which are beyond our control. Our ability to comply with these covenants in future periods will also depend substantially on the pricing of our products and services, our success at implementing cost reduction initiatives and our...

  • Page 73
    ... subsidiaries, accounted for approximately 35% of our total revenues and 33% of our Corporate EBITDA for the year ended December 31, 2008. See Note 9 to the Notes to our consolidated financial statements included in this Annual Report under the caption ''Item 8-Financial Statements and Supplementary...

  • Page 74
    ..., upon the number of shares purchased by the recipients of the e-mails and the trading price of our common stock. If any liability is asserted, we intend to contest the matter vigorously. Hertz Holdings is a holding company with no operations of its own that depends on its subsidiaries for cash. The...

  • Page 75
    ... reduce the market price of our common stock. The interests of the Sponsors may conflict with the interests of our other stockholders. See ''-Risks Related to our Business-The Sponsors currently control us and may have conflicts of interest with us in the future.'' Our board of directors has adopted...

  • Page 76
    .... ITEM 2. PROPERTIES UNRESOLVED STAFF COMMENTS We operate car rental locations at or near airports and in central business districts and suburban areas of major cities in North America (the United States, including Puerto Rico and the U.S. Virgin Islands, and Canada), Europe (France, Germany, Italy...

  • Page 77
    ... our Oklahoma City car rental reservation center. We plan to close the Saraland facility in mid-2009. We maintain our executive offices in an owned facility in Park Ridge, New Jersey and lease a European headquarters office in Uxbridge, England. ITEM 3. LEGAL PROCEEDINGS Fuel-Related Class Actions...

  • Page 78
    ..., v. Hertz Equipment Rental Corporation, was filed in the United States District Court for the District of New Jersey. Davis Landscape, Ltd., purported to be a nationwide class action on behalf of all persons and business entities who rented equipment from HERC and who paid a Loss Damage Waiver, or...

  • Page 79
    ... Rent-A-Car Company was filed in the United States District Court for the District of Nevada. Sobel purported to be a nationwide class action on behalf of all persons who rented cars from Hertz or Enterprise at airports in Nevada and whom Hertz or Enterprise charged airport concession recovery fees...

  • Page 80
    ... Vanguard Car Rental USA, Inc., Enterprise Rent-A-Car Company, Fox Rent A Car, Inc., Coast Leasing Corp., The California Travel and Tourism Commission, and Caroline Beteta was commenced in the United States District Court for the Southern District of California. Shames purported to be a class action...

  • Page 81
    ... to defend and settle public liability and property damage actions and claims or to pay judgments resulting from them. On February 19, 2007, The Hertz Corporation and TSD Rental LLC v. Enterprise Rent-A-Car Company and The Crawford Group, Inc. was filed in the United States District Court for the...

  • Page 82
    ... Vice President and Chief Financial Officer Executive Vice President and President, Vehicle Rental and Leasing, The Americas and Pacific Executive Vice President and President, HERC Executive Vice President and President, Hertz Europe Limited Executive Vice President, Global Supply Chain Management...

  • Page 83
    ...Company for 13 years in positions of increasing responsibility across multiple business units, including serving as General Manager, Global Supply Chain for the Aircraft Engines business from 2000 through 2003. Ms. Baker has served as the Senior Vice President, Chief Human Resources Officer of Hertz...

  • Page 84
    ... and Chief Financial Officer for Hertz Europe Limited, responsible for both car and equipment rental. He also served two years as Corporate Controller in Europe. Prior to his service in Europe, Mr. Kapur held various financial management positions in the North American vehicle rental business. Prior...

  • Page 85
    ...to our total market capitalization. The Hemscott Industry Group 761-Rental & Leasing Services is a published, market capitalization-weighted index representing 27 stocks of companies that rent or lease various durable goods to the commercial and consumer market including cars and trucks, medical and...

  • Page 86
    ... PURCHASES OF EQUITY SECURITIES (Continued) The results are based on an assumed $100 invested on November 15, 2006, at the market close, through December 31, 2008. Trading in our common stock began on the NYSE on November 16, 2006. COMPARISON OF CUMULATIVE TOTAL RETURN AMONG HERTZ GLOBAL HOLDINGS...

  • Page 87
    ... of December 31, 2008 and 2007 presented below were derived from our consolidated financial statements and the related notes thereto included in this Annual Report under the caption ''Item 8-Financial Statements and Supplementary Data.'' You should read the following information in conjunction with...

  • Page 88
    ... Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.'' Includes net proceeds from the sale of stock to employees and the initial public offering of approximately $1,284.5 million, equity contributions totaling $2,295.0 million to Hertz Holdings from investment...

  • Page 89
    ..., including charges to customers for the reimbursement of costs incurred relating to airport concession fees and vehicle license fees, the fueling of vehicles and the sale of loss or collision damage waivers, liability insurance coverage and other products); • Equipment rental revenues (revenues...

  • Page 90
    ...in the volume of car rental and equipment rental transactions, an increase in depreciation and fleet related costs as a percentage of revenue, lower industry pricing and lower residual values for the non-program cars and equipment that we sold. See ''Item 1A-Risk Factors'' in this Annual Report. Our...

  • Page 91
    ... equipment rental operations, as well as financial and reservations-related positions in our U.S. service center in Oklahoma City, Oklahoma. During 2007, we began to implement cost saving initiatives in our European operations, and we continued implementation of these measures in 2008. Additionally...

  • Page 92
    ...of our total car rental revenues in the years ended December 31, 2008, 2007 and 2006, respectively. In 2009 and subsequent years, our strategy will include selected openings of new off-airport locations, the disciplined evaluation of existing locations and the pursuit of same-store sales growth. Our...

  • Page 93
    ... the residual value of the applicable revenue earning equipment at the expected time of disposal. The residual values for rental vehicles are affected by many factors, including make, model and options, age, physical condition, mileage, sale location, time of the year and channel of disposition...

  • Page 94
    ... for the difference between the net proceeds received and the remaining net book value. See Note 6 to the Notes to our consolidated financial statements included in this Annual Report under the caption ''Item 8-Financial Statements and Supplementary Data.'' Public Liability and Property Damage The...

  • Page 95
    ... analyses for our reporting units, using our business and long-term strategic plans, revised to reflect the current economic conditions. Our weighted-average cost of capital used in the discounted cash flow model was calculated based upon the fair value of our debt and our stock price with a debt to...

  • Page 96
    ... Data.'' Stock-Based Compensation In December 2004, the Financial Accounting Standards Board, or the ''FASB,'' revised its SFAS, No. 123, with SFAS No. 123R, ''Share-Based Payment.'' The revised statement requires a public entity to measure the cost of employee services received in exchange for an...

  • Page 97
    ... Plan,'' the Hertz Global Holdings, Inc. Director Stock Incentive Plan, or the ''Director Plan,'' and Omnibus Plan, are pushed down from Hertz Holdings and recorded on the books at the Hertz level. See Note 5 to the Notes to our consolidated financial statements included in this Annual Report...

  • Page 98
    ... of total revenues represented by the various line items in our consolidated statements of operations (in millions of dollars): Years Ended December 31, 2008 2007 2006 Percentage of Revenues Years Ended December 31, 2008 2007 2006 Revenues: Car rental ...Equipment rental ...Other ...Total revenues...

  • Page 99
    ... items are driven by factors beyond the control of management (i.e. the price of fuel and the concession fees charged by airports). Additionally, NeverLost units are an optional revenue product which management does not consider to be part of their daily pricing of car rental transactions. 79

  • Page 100
    ... 31, 2008 Car Equipment Rental Rental Loss before income taxes and minority Adjustments: Purchase accounting(1) ...Non-cash debt charges(2) ...Unrealized loss on derivatives(3) ...Realized gain on derivatives(3) ...Restructuring charges ...Restructuring related charges(4) ...Impairment charges...

  • Page 101
    ... accretion of revalued workers' compensation and public liability and property damage liabilities. Represents non-cash debt charges relating to the amortization of deferred debt financing costs and debt discounts. During the years ended December 31, 2008 and 2007, also includes $11.8 million and $20...

  • Page 102
    ...than depreciation related to the car rental fleet) and amortization and before certain other items, in each case as more fully defined in the agreements governing our Senior Credit Facilities. The other items excluded in this calculation include, but are not limited to: non-cash expenses and charges...

  • Page 103
    ... ...Adjustments: Car rental fleet interest ...Car rental fleet depreciation ...Non-cash expenses and charges(5) ...Extraordinary, unusual or non-recurring gains or losses(6) Sponsors' fees ... ... Corporate EBITDA ... (1) (2) For the years ended December 31, 2008, 2007 and 2006, includes corporate...

  • Page 104
    ... 31, 2008 2007 2006 Non-cash amortization and write-off of debt costs included in car rental fleet interest ...Corporate non-cash stock-based employee compensation charges Corporate non-cash charges for workers' compensation ...Corporate non-cash charges for pension ...Unrealized (gain) loss on...

  • Page 105
    ... refueling fees of $31.9 million. RPD for worldwide car rental for the year ended December 31, 2008 declined 2.3% from 2007, due to declines in U.S. and International RPD of 2.0% and 3.5%, respectively. U.S. airport RPD decreased 1.9% and U.S. off-airport RPD declined by 1.0%. Our strategy includes...

  • Page 106
    ... U.S. benefits of $16.5 million primarily relating to the decrease in the employee vacation accrual resulting from a change in our U.S. vacation policy in 2007. Depreciation of revenue earning equipment for our car rental operations of $1,843.8 million for the year ended December 31, 2008 increased...

  • Page 107
    ... million. Impairment charges represent non-cash impairment charges incurred during the fourth quarter of 2008 relating to our goodwill, other intangible assets and property and equipment. See Notes 1 and 2 to the Notes to our consolidated financial statements included in this Annual Report under the...

  • Page 108
    ...' compensation and public liability and property damage ... $ 61.2 22.7 7.0 4.4 5.5 $100.8 Year Ended December 31, 2007 Compared with Year Ended December 31, 2006 Revenues Years Ended December 31, 2007 2006 $ Change % Change Revenues Car rental ...Equipment rental ...Other ...Total revenues...

  • Page 109
    ... pricing, partly offset by a decline in U.S. off-airport RPD of 2.2%, reflecting the continued growth of longer length, lower RPD business, which has a lower cost profile. Our strategy includes increasing penetration in the off-airport market and growing the online leisure market, particularly...

  • Page 110
    ...higher cost of vehicles in the United States, an increase in average fleet operated, lower net proceeds received in excess of book value on the disposal of used vehicles, a $13.7 million net increase in depreciation in certain of our car rental operations resulting from changes in depreciation rates...

  • Page 111
    ... assets ...Revenue earning equipment ...Property and equipment ...Accretion of revalued liabilities: Discount on debt ...Workers' compensation and public liability and property damage ... $ 61.2 19.8 7.8 7.0 5.5 $101.3 Liquidity and Capital Resources As of December 31, 2008, we had cash and...

  • Page 112
    ... true of our airport car rental operations and our equipment rental operations. To accommodate increased demand, we maintain a larger fleet by holding vehicles and equipment and purchasing additional fleet which increases our financing requirements in the second and third quarters of the year...

  • Page 113
    ... 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...

  • Page 114
    ... financing to purchase cars subjects us to a number of risks, many of which are beyond our control.'' We rely significantly on asset-backed financing to purchase cars for our domestic and international car rental fleets. For further information concerning our asset-backed financing programs, see...

  • Page 115
    ...other funding sources, including car and equipment sales, to repay the affected series of notes. For a discussion of risks related to the financial instability of MBIA or Ambac, see ''Item 1A-Risk Factors-Risks Relating to Our Substantial Indebtedness-The third-party insurance companies that provide...

  • Page 116
    .... Senior ABL Facility. Hertz, Hertz Equipment Rental Corporation and certain other subsidiaries of Hertz entered into a credit agreement, dated December 21, 2005, with respect to the Senior ABL Facility with Deutsche Bank AG, New York Branch as administrative agent, Lehman Commercial Paper Inc. as...

  • Page 117
    ... dividends to be paid to Hertz Holdings in an aggregate amount, taken together with certain other investments, acquisitions and optional prepayments, not to exceed $100 million. Hertz may also pay additional cash dividends under the Senior ABL Facility, and in any amount, so long as (a) there is at...

  • Page 118
    ... to permit Hertz and its subsidiaries to guarantee obligations in respect to the deferred purchase price of vehicles and all other obligations arising under vehicle supply agreements entered into by Fleetco (Espana), S.L., an entity created to own the Spanish rental car fleet in connection with the...

  • Page 119
    ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) rental car fleets in a number of European countries and Australia. Due to Spanish law considerations, Fleetco (Espana), S.L. is an ''orphan'' entity which is an indirect subsidiary of a ...

  • Page 120
    ... class of notes has an expected final payment date approximately three, four or five years from the Closing Date. The variable funding notes will be funded through the bank multi seller commercial paper market. The assets of HVF, including the U.S. car rental fleet owned by HVF and certain related...

  • Page 121
    ... value of the HVF Swaps was calculated using a discounted cash flow method and applying observable market data (i.e. the 1-month LIBOR yield curve and credit default swap spreads). In connection with the entrance into the HVF Swaps, Hertz entered into seven differential interest rate swap agreements...

  • Page 122
    ... upon their rating. The Series 2008-1 Notes are currently rated ''A'' by Standard & Poor's Ratings Services and ''A3'' by Moody's Investors Service. Pursuant to a note purchase agreement, HVF sold the Series 2008-1 Notes to each of Deutsche Bank AG, New York Branch, Nantucket Funding Corp. LLC, (an...

  • Page 123
    ...equal to the net proceeds of specified types of take-out financing transactions and asset sales. The interest rates per annum applicable to loans under the International Fleet Debt facilities are based on fluctuating rates of interest measured by reference to one-month LIBOR, Euro inter-bank offered...

  • Page 124
    ...our total consolidated net assets. The subsidiaries conducting the car rental business in certain European jurisdictions may, at their option, continue to engage in capital lease financings relating to revenue earning equipment outside the International Fleet Debt facilities. As of December 31, 2008...

  • Page 125
    ... its guarantee of PR Cars' obligations under the Fleet Financing Facility, are secured by security interests in Hertz's rental car fleet in Hawaii and by certain assets related to Hertz's rental car fleet in Hawaii and Kansas, including, without limitation, manufacturer repurchase program agreements...

  • Page 126
    ..., and certain related agreements and transactions, in order to establish an asset-backed borrowing facility to provide financing for our Canadian rental car fleet (the ''Canadian Fleet Financing Facility''). The new facility refinanced the Canadian portion of the International Fleet Debt facilities...

  • Page 127
    ... portion of the International Fleet Debt facilities. This facility is guaranteed by HIL and pricing is based on current LIBOR. This facility contains covenants typical for this type of facility including restrictions on engaging in mergers and change of business, and includes requirements to meet on...

  • Page 128
    ... requirements and other factors, many of which are outside our control. See ''Item 1A-Risk Factors-Risks Related to our Substantial Indebtedness-Our reliance on asset-backed financing to purchase cars subjects us to a number of risks, many of which are beyond our control.'' As of December 31, 2008...

  • Page 129
    ...a guaranteed minimum, and lease agreements for real estate, revenue earning equipment and office and computer equipment. Such obligations are reflected to the extent of their minimum non-cancelable terms. See Note 8 to the Notes to our consolidated financial statements included in this Annual Report...

  • Page 130
    ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Capital Expenditures The table below shows revenue earning equipment and property and equipment capital expenditures and related disposal proceeds received by quarter for 2008, 2007 and 2006 (...

  • Page 131
    ..., pursuant to which Hertz Holdings and Hertz will indemnify the Sponsors, our stockholders affiliated with the Sponsors and their respective affiliates, directors, officers, partners, members, employees, agents, representatives and controlling persons, against certain liabilities arising out of...

  • Page 132
    ...including the technologies to be required and the extent, duration, and success of remediation). Risk Management For a discussion of additional risks arising from our operations, including vehicle liability, general liability and property damage insurable risks, see ''Item 1-Business-Risk Management...

  • Page 133
    ... connection with this interest rate cap, Hertz sold an equal and opposite cap for $0.3 million. The fair value of these interest rate caps on December 31, 2008 were an asset of $0.3 million and a liability of $0.3 million. The fair value of these interest rate caps was calculated using a discounted...

  • Page 134
    ... countries in which we operate, including making fleet and equipment purchases and borrowing for working capital needs. Also, we have purchased foreign exchange options to manage exposure to fluctuations in foreign exchange rates for selected marketing programs. The effect of exchange rate changes...

  • Page 135
    ... taxes. Employee Retirement Benefits Pension We sponsor defined benefit pension plans worldwide. Pension obligations give rise to significant expenses that are dependent on assumptions discussed in Note 4 of the Notes to our consolidated financial statements included in this Annual Report under the...

  • Page 136
    ... and directors as well as the grant of stock options to purchase shares of Hertz Holdings to those individuals. During the second quarter of 2006, we made an equity offering to approximately 350 of Hertz's executives and key employees (not including Craig R. Koch, our former Chief Executive Officer...

  • Page 137
    ... Stock Incentive Plan. On June 12, 2006, Mr. Koch purchased 50,000 shares of the common stock of Hertz Holdings at a purchase price of $10.00 per share and received options to purchase an additional 100,000 shares at a purchase price of $10.00 per share ($5.68 after adjustment for the special cash...

  • Page 138
    ..., employees and non-management directors at exercise prices ranging from $20.55 to $21.87. In August 2007, Hertz Holdings granted options to acquire 510,000 shares of Hertz Holdings' common stock to certain executives, including an award to Mark P . Frissora, our Chief Executive Officer, at...

  • Page 139
    ... market value of one share of Hertz Holdings common stock on the grant date. Stock options and stock appreciation rights will vest based on a minimum period of service or the occurrence of events (such as a change in control, as defined in the Omnibus Plan) specified by the compensation committee...

  • Page 140
    ... of total unrecognized compensation cost related to non-vested stock options granted by Hertz Holdings under our Prior Plans and the Omnibus Plan, including costs related to modifying the exercise prices of certain option grants in order to preserve the intrinsic value of the options, consistent...

  • Page 141
    ...31, 2008, we recognized compensation cost of approximately $0.4 million ($0.2 million, net of tax) for RSUs and PSUs. Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, see Note 1 to the Notes to our consolidated financial statements included in this Annual Report...

  • Page 142
    ..., on the financial statement schedules, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and...

  • Page 143
    ...' EQUITY Accounts payable ...Accrued salaries and other compensation ...Other accrued liabilities ...Accrued taxes ...Debt ...Public liability and property damage ...Deferred taxes on income ...Total liabilities ...Commitments and contingencies Minority interest ...Stockholders' equity: Common Stock...

  • Page 144
    HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands of Dollars, except share data) Years ended December 31, 2007 2006 2008 Revenues: Car rental ...Equipment rental ...Other ...Total revenues ...Expenses: Direct operating ...Depreciation of revenue ...

  • Page 145
    ...related to defined pension plans ...1,227,950 13 ...321,862,083 ... Defined benefit pension plans, net ...Total Comprehensive Loss ...Stock-based employee compensation charges, net of tax of $643 ...Exercise of stock options ...Common shares issued to Directors ...Phantom shares issued to Directors...

  • Page 146
    ... on sale of property and equipment ...Impairment charges ...Changes in assets and liabilities, net of effects of acquisition: Receivables ...Inventories, prepaid expenses and other assets ...Accounts payable ...Accrued liabilities ...Accrued taxes ...Public liability and property damage ...Net cash...

  • Page 147
    ... also used to pay special cash dividends of $1.12 per share on November 21, 2006 to stockholders of record of Hertz Holdings immediately prior to the initial public offering. In June 2007, the Sponsors completed a secondary public offering of 51,750,000 shares of their Hertz Holdings common stock at...

  • Page 148
    ... and fleet related costs as a percentage of revenue, lower industry pricing and lower residual values for the non-program cars and equipment that we sold. We are highly leveraged and a substantial portion of our liquidity needs arises from debt service on indebtedness incurred in connection with...

  • Page 149
    ... financial statements include the accounts of Hertz Holdings and our wholly-owned and majority-owned domestic and international subsidiaries. All significant intercompany transactions have been eliminated. Revenue Recognition Rental and rental-related revenue (including cost reimbursements...

  • Page 150
    ... FINANCIAL STATEMENTS (Continued) equipment is rented based on the terms of the rental or leasing contract. Revenue related to new equipment sales and consumables is recognized at the time of delivery to, or pick-up by, the customer and when collectability is reasonably assured. Fees from...

  • Page 151
    ...for public liability and property damage on self-insured U.S. and international vehicles and equipment represents an estimate for both reported accident claims not yet paid, and claims incurred but not yet reported. The related liabilities are recorded on a non-discounted basis. Reserve requirements...

  • Page 152
    ... amounts. Sales tax amounts collected from customers have been recorded on a net basis. Prior to the Acquisition, Hertz and its domestic subsidiaries filed a consolidated federal income tax return with Ford. Pursuant to a tax sharing agreement, with Ford, current and deferred taxes were reported and...

  • Page 153
    ...-pricing model, which includes assumptions related to volatility, expected life, dividend yield, risk-free interest rate and forfeiture rate. See Note 5-Hertz Holdings Stock Incentive Plan. Use of Estimates and Assumptions Use of estimates and assumptions as determined by management are required...

  • Page 154
    ... the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires that acquisition related costs be expensed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand...

  • Page 155
    ... quarter 2008 operating results, and a significant decline in both the fair value of debt and our stock price. The following summarizes the changes in our goodwill, by segment, for the period presented (in thousands of dollars): Car Rental Equipment Rental Total Balance as of December 31, 2007...

  • Page 156
    ... ended December 31, 2008, we added 72 locations by acquiring former franchisees in our domestic and international car rental operations, as well as four locations related to external acquisitions done within our domestic and international equipment rental operations. Total cash paid for intangible...

  • Page 157
    HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 3-Debt Our debt consists of the following (in thousands of dollars): December 31, 2008 2007 Corporate Debt Senior Term Facility, average interest rate: 2008, 3.3%; 2007, 6.9% (effective average ...

  • Page 158
    ... to support self-insurance programs (including insurance policies with respect to which we have indemnified the issuers for any losses) in the United States, Canada and Europe and to support airport concession obligations in the United States and Canada. As of December 31, 2008, none of these...

  • Page 159
    ... HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Hertz, Hertz Equipment Rental Corporation and certain other subsidiaries of Hertz entered into a credit agreement, dated December 21, 2005, with respect to the Senior ABL Facility with Deutsche Bank AG, New York...

  • Page 160
    ... The ability of Hertz to pay cash dividends and make loans to Hertz Holdings remains subject to Hertz's meeting specified financial tests, as described above, as well as requirements imposed by applicable Delaware law. The amendment to the Senior Term Facility also permitted Hertz to use proceeds of...

  • Page 161
    ...deferred purchase price of vehicles and all other obligations arising under vehicle supply agreements entered into by Fleetco (Espana), S.L., an entity created to own the Spanish rental car fleet in connection with the pending securitization of the rental car fleets in a number of European countries...

  • Page 162
    ... class of notes has an expected final payment date approximately three, four or five years from the Closing Date. The variable funding notes will be funded through the bank multi seller commercial paper market. The assets of HVF, including the U.S. car rental fleet owned by HVF and certain related...

  • Page 163
    ... principal of the notes and a liquidation of the U.S. car rental fleet. Series 2008-1 Notes. On September 12, 2008, HVF completed the closing of a new variable funding note facility referred to as the Series 2008-1 Notes. This series is not subject to any financial guarantee. The aggregate principal...

  • Page 164
    ... upon their rating. The Series 2008-1 Notes are currently rated ''A'' by Standard & Poor's Ratings Services and ''A3'' by Moody's Investors Service. Pursuant to a note purchase agreement, HVF sold the Series 2008-1 Notes to each of Deutsche Bank AG, New York Branch, Nantucket Funding Corp. LLC, (an...

  • Page 165
    ...equal to the net proceeds of specified types of take-out financing transactions and asset sales. The interest rates per annum applicable to loans under the International Fleet Debt facilities are based on fluctuating rates of interest measured by reference to one-month LIBOR, Euro inter-bank offered...

  • Page 166
    ... SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The subsidiaries conducting the car rental business in certain European jurisdictions may, at their option, continue to engage in capital lease financings relating to revenue earning equipment outside the International Fleet Debt...

  • Page 167
    ... its guarantee of PR Cars' obligations under the Fleet Financing Facility, are secured by security interests in Hertz's rental car fleet in Hawaii and by certain assets related to Hertz's rental car fleet in Hawaii and Kansas, including, without limitation, manufacturer repurchase program agreements...

  • Page 168
    ... portion of the International Fleet Debt facilities. This facility is guaranteed by HIL and pricing is based on current LIBOR. This facility contains covenants typical for this type of facility including restrictions on engaging in mergers and change of business, and includes requirements to meet on...

  • Page 169
    ... use of Hertz and its subsidiaries: Availability Under Borrowing Base Limitation Remaining Capacity Corporate Debt Senior Term Facility ...Senior ABL Facility ...Total Corporate Debt ...Fleet Debt U.S. Fleet Debt and Series 2008-1 Notes International Fleet Debt ...International ABS Fleet Financing...

  • Page 170
    ... of 20 years of service and who retired at age 58 or above. We use a December 31 measurement date for all our plans. The following tables set forth the funded status and the net periodic pension cost of the Hertz Retirement Plan, other postretirement benefit plans (including health care and life...

  • Page 171
    HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) together with amounts included in our consolidated balance sheet and statement of operations (in millions of dollars): Pension Benefits Non-U.S. 2007 2008 2007 Postretirement Benefits (U.S.) 2008 2007...

  • Page 172
    HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Pension Benefits U.S. Non-U.S. 2008 2007 2008 2007 Postretirement Benefits (U.S.) 2008 2007 Amounts recognized in balance sheet: Liabilities ...$(201.8) $(121.5) Net obligation recognized in the ...

  • Page 173
    ... investment mix of plan assets. Pension Benefits U.S. Non-U.S. Years ended Years ended December 31, December 31, 2008 2007 2006 2008 2007 2006 Components of Net Periodic Benefit Cost: Service cost ...Interest cost ...Expected return on plan assets ...Amortization: Losses and other ...Curtailment...

  • Page 174
    HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The provisions charged to income for the years ended December 31, 2008, 2007 and 2006 for all other pension plans were approximately (in millions of dollars) $8.0, $7.8 and $8.0, respectively. The ...

  • Page 175
    ... under the Stock Incentive Plan through new shares reserved for issuance, not through the use of Treasury shares or open market purchases of shares. All option grants were non-qualified options with a per-share exercise price no less than fair market value of one share of Hertz Holdings stock on the...

  • Page 176
    ... of employment (180 days in the case of death, disability or retirement at normal retirement age). In May 2007, Hertz Holdings granted options to acquire 1,029,007 shares of Hertz Holdings' common stock to key executives, employees and non-management directors at exercise prices ranging from $20...

  • Page 177
    ... market value of one share of Hertz Holdings common stock on the grant date. Stock options and stock appreciation rights will vest based on a minimum period of service or the occurrence of events (such as a change in control, as defined in the Omnibus Plan) specified by the compensation committee...

  • Page 178
    ...Hertz Holdings' common stock price as an assumption in the valuation model. We selected the Dow Jones Specialized Consumer Services sub-sector within the consumer services industry, and we used the U.S. large capitalization component, which includes the top 70% of the index universe (by market value...

  • Page 179
    ... million of total unrecognized compensation cost related to non-vested stock options granted by Hertz Holdings under the Prior Plans and Omnibus Plan, including costs related to modifying the exercise prices of certain option grants in order to preserve the intrinsic value of the options, consistent...

  • Page 180
    ... conditions and their effect on residual values at the time of disposal. During 2008, 2007 and 2006, depreciation rates being used to compute the provision for depreciation of revenue earning equipment were adjusted on certain vehicles in our car rental operations to reflect changes in the estimated...

  • Page 181
    HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 7-Taxes on Income The components of income (loss) before income taxes and minority interest for the periods were as follows (in thousands of dollars): Years ended December 31, 2008 2007 2006 ...

  • Page 182
    HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) As of December 31, 2008, deferred tax assets of $282.0 million were recorded for U.S. Federal Net Operating Losses, or ''NOL,'' carryforwards of $805.7 million. The total Federal NOL carryforwards are...

  • Page 183
    ...to 2008. A tax indemnification agreement entered into with Ford on the Closing Date indemnifies Hertz from U.S. federal and unitary state, and certain combined non-U.S. income tax liabilities for all periods prior to December 21, 2005. We are not currently under audit by the Internal Revenue Service...

  • Page 184
    ... concession agreements and real estate leases require us to pay or reimburse operating expenses, such as common area charges and real estate taxes, to pay concession fees above guaranteed minimums or additional rent based on a percentage of revenues or sales (as defined in those agreements) arising...

  • Page 185
    ..., customers, and delivery methods. We have identified two reportable segments: rental of cars and light trucks, or ''car rental,'' and rental of industrial, construction and material handling equipment, or ''equipment rental.'' Adjusted pre-tax income (loss) is the measure utilized by management in...

  • Page 186
    HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) reportable segments for the years ended December 31, 2008, 2007 and 2006 are summarized below (in millions of dollars). Years ended December 31, 2008 Revenues Car rental ...Equipment rental ...Other ...

  • Page 187
    ...): Years ended December 31, 2008 2007 2006 Revenues United States ...International ...Total ...Depreciation of revenue earning equipment United States ...International ...Total ...Depreciation of property and equipment United States ...International ...Total ...Amortization of other intangible...

  • Page 188
    ... and accretion of revalued workers' compensation and public liability and property damage liabilities. Represents non-cash debt charges relating to the amortization of deferred debt financing costs and debt discounts. For years ended December 31, 2008 and 2007, also includes $11.8 million and $20...

  • Page 189
    ... Fuel-Related Class Actions We had been a defendant in four purported class actions-filed in Texas, Oklahoma, New Mexico and Nevada-in which the plaintiffs put forth alternate theories to challenge the application of our Fuel and Service Charge, or ''FSC,'' on rentals of cars that were returned...

  • Page 190
    ..., v. Hertz Equipment Rental Corporation, was filed in the United States District Court for the District of New Jersey. Davis Landscape, Ltd., purported to be a nationwide class action on behalf of all persons and business entities who rented equipment from HERC and who paid a Loss Damage Waiver, or...

  • Page 191
    ... Vanguard Car Rental USA, Inc., Enterprise Rent-A-Car Company, Fox Rent A Car, Inc., Coast Leasing Corp., The California Travel and Tourism Commission, and Caroline Beteta was commenced in the United States District Court for the Southern District of California. Shames purported to be a class action...

  • Page 192
    ... to defend and settle public liability and property damage actions and claims or to pay judgments resulting from them. On February 19, 2007, The Hertz Corporation and TSD Rental LLC v. Enterprise Rent-A-Car Company and The Crawford Group, Inc. was filed in the United States District Court for the...

  • Page 193
    ... HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) anticompetitive and unfair and deceptive business practices by claiming to customers of Hertz that once Enterprise obtains a patent that it has applied for relating to its insurance replacement reservation system...

  • Page 194
    ..., directors, officers, partners, members, employees, agents, representatives and controlling persons, against certain liabilities arising out of performance of a consulting agreement with Hertz Holdings and each of the Sponsors and certain other claims and liabilities, including liabilities arising...

  • Page 195
    ... STATEMENTS (Continued) Note 11-Quarterly Financial Information (Unaudited) A summary of the quarterly operating results during 2008 and 2007 were as follows (in thousands of dollars, except per share data): First Quarter 2008 Second Quarter 2008 Third Quarter 2008 Fourth Quarter 2008 Revenues...

  • Page 196
    ... equipment rental operations, as well as financial and reservations-related positions in our U.S. service center in Oklahoma City, Oklahoma. During 2007, we began to implement cost saving initiatives in our European operations, and we continued implementation of these measures in 2008. Additionally...

  • Page 197
    ..., losses on disposal of surplus equipment and recognition of future facility lease obligations related to branch closures in the U.S. and Europe. Our U.S. car rental business, in order to streamline operations and reduce costs, initiated the closure of 48 off-airport locations and incurred a charge...

  • Page 198
    ... December 31, 2008 2007 Car rental ...Equipment rental ...Other reconciling items ...Total ... $ 98,223 103,151 14,731 $216,105 $64,514 5,034 26,929 $96,477 Our consolidated balance sheet as of December 31, 2008 and 2007, included accruals relating to the restructuring program of $60.3 million...

  • Page 199
    ... credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising our customer base, and their dispersion across different businesses and geographic areas. As of December 31, 2008, we had no...

  • Page 200
    ... value of the HVF Swaps was calculated using a discounted cash flow method and applying observable market data (i.e. the 1-month LIBOR yield curve and credit default swap spreads). In connection with the entrance into the HVF Swaps, Hertz entered into seven differential interest rate swap agreements...

  • Page 201
    ..., these swaptions were sold for a realized gain of e9.4 million (or $14.8 million). Additionally, on June 4, 2008, HIL purchased two new swaptions for e8.6 million, to protect itself from interest rate increases associated with the International ABS Fleet Financing Facility, which closed on July 24...

  • Page 202
    ... countries in which we operate, including making fleet and equipment purchases and borrowing for working capital needs. Also, we have purchased foreign exchange options to manage exposure to fluctuations in foreign exchange rates for selected marketing programs. The effect of exchange rate changes...

  • Page 203
    ... agreed to purchase from Ford, during each of the 2005 through 2010 vehicle model years, a specific number of Ford Vehicles. Ford has also agreed in the Master Supply and Advertising Agreement to pay us a contribution toward the cost of our advertising of Ford Vehicles equal to one-half of our total...

  • Page 204
    ...our respective businesses. These transactions include providing car and equipment rental services to Ford and providing insurance and insurance claim management services to Ford. In addition, Ford subsidiaries are our car rental licensees in Scandinavia and Finland. Relationship with Hertz Investors...

  • Page 205
    HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Sponsor Designees, for so long as Hertz Holdings remains a ''controlled company'' within the meaning of the New York Stock Exchange rules), subject to adjustment in the case that the applicable ...

  • Page 206
    ... change in control as defined in the Director Plan or the Omnibus Plan). Options granted under the Director Compensation Policy must be granted at an exercise price no less than fair market value of such shares on the date of grant. Options granted as part of a director's annual retainer fee will be...

  • Page 207
    ... administrator of the Stock Incentive Plan and receives customary fees and expenses for these services. 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...

  • Page 208
    .... 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...

  • Page 209
    ...891,072 Total assets ...LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable ...Accrued liabilities ...Accrued taxes ...Total liabilities ...Stockholders' equity: Common stock, $0.01 par value, 2,000,000,000 shares 322,987,299 and 321,862,083 shares issued ...Additional paid-in capital ...Retained...

  • Page 210
    ...) HERTZ GLOBAL HOLDINGS, INC. PARENT COMPANY STATEMENTS OF OPERATIONS (In Thousands of Dollars) Years ended December 31, 2008 2007 2006 Revenues ...Expenses: Selling, general and administrative ...Interest, net of interest income of $580, $372 and $250 ...Total expenses ...Other income (loss...

  • Page 211
    ...292,705 $ Total Comprehensive Income (revised) ...Sale of common stock in initial public offering ...Cash dividends ($4.32 and $1.12 per common share) ...Stock-based employee compensation charges ...Sale of stock under employee equity offering ...Adjustment to initially apply FASB Statement No. 158...

  • Page 212
    ...Dividends from subsidiary ...Net cash used in investing activities ...Cash flows from financing activities: Proceeds from issuance of long-term debt ...Repayment of long-term debt ...Payment of financing costs ...Exercise of stock options ...Accounts receivable from Hertz affiliate ...Proceeds from...

  • Page 213
    ... Holdings, see Notes 8 and 10 to the Notes to the consolidated financial statements included in this Annual Report under the caption ''Item 8-Financial Statements and Supplementary Data.'' Note 4-Dividends Hertz Holdings did not receive any cash dividends from its subsidiaries during 2008 and 2007...

  • Page 214
    ... HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES (In Thousands of Dollars) Additions Balance at Beginning of Charged to Translation Balance at Period Expense Adjustments Deductions End of Period Allowance for Year ended Year ended Year ended doubtful accounts: December 31, 2008 ...December 31, 2007...

  • Page 215
    ... limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions...

  • Page 216
    ... the Board of Directors and its Committees'' of our 2009 Proxy Statement. Such information is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information relating to this item is set forth under the caption ''Independent Registered Public Accounting Firm Fees'' of...

  • Page 217
    ... documents are filed as part of this Annual Report: Page (a) 1. 2. 3. Exhibit Number Financial Statements: Our financial statements filed herewith are set forth in Part II, Report as follows: Hertz Global Holdings, Inc. and Subsidiaries- Report of Independent Registered Public Accounting Firm...

  • Page 218
    ...Fargo Bank, National Association, as Trustee, relating to the 10.5% Senior Subordinated Notes due 2016 (Incorporated by reference to Exhibit 4.1.5 to the Quarterly Report on Form 10-Q of Hertz Global Holdings, Inc., as filed on November 14, 2007.) Exchange and Registration Rights Agreement, dated as...

  • Page 219
    ...the financial institutions named therein (Incorporated by reference to Exhibit 4.5.1.3 to the Quarterly Report on Form 10-Q of Hertz Global Holdings, Inc., as filed on August 8, 2008) Intercreditor Deed, dated as of December 21, 2005, by and between Hertz International, Ltd., as Parent, Hertz Europe...

  • Page 220
    ... Annual Report on Form 10-K of Hertz Global Holdings, Inc., as filed on February 29, 2008) Australian Purchaser Charge (Project H)-Unlimited, dated as of December 21, 2005, by and between Hertz Australia Pty Limited and HA Funding Pty Limited* Australian Purchaser Charge (Project H)-South Australia...

  • Page 221
    ... Number Description 4.5.19 Share Account Pledge Agreement (Acte de Nantissement de Compte d'Instruments Financiers), dated as of December 21, 2005, by and between Hertz France, as Pledgor, BNP Paribas, as Security Agent, Hertz Equipement France, as Account Holder, BNP Paribas, as Bank Account...

  • Page 222
    ... the Balance of Bank Account, dated as of December 21, 2005, between Hertz Italiana S.p.A., as Pledgor, and BNP Paribas S.A., as Pledgee and Security Agent* Pledge Agreement over Hertz Italiana S.p.A. shares, dated as of December 21, 2005, between Hertz Holding South Europe S.r.l as Pledgor and BNP...

  • Page 223
    ... International Ltd., Hertz Equipment Rental International, Limited, Hertz de Espa˜ na, S.A., and BNP Paribas S.A., as Security Agent* Reserved Reserved Share Pledge Agreement, dated as of December 21, 2005, between Hertz Holdings South Europe S.r.l and BNP Paribas S.A. as Security Agent relating...

  • Page 224
    Exhibit Number Description 4.5.59 4.5.60 4.6.1 Deed of Charge over Shares in Hertz Holdings III UK Limited, dated as of December 21, 2005, between Hertz International, Ltd. and BNP Paribas as Security Agent* Deed of Charge, dated as of December 21, 2005, between BNS Automobile Funding B.V. as ...

  • Page 225
    ... Global Holdings, Inc., as filed on November 14, 2007.) Credit Agreement, dated as of December 21, 2005, by and between Hertz Equipment Rental Corporation, The Hertz Corporation, the Canadian Borrowers parties thereto, the several lenders from time to time parties thereto, Deutsche Bank AG, New York...

  • Page 226
    ... Matthews Equipment Limited and Deutsche Bank AG, Canada Branch, as Canadian Agent and Canadian Collateral Agent* Deed of Trust, Security Agreement, and Assignment of Leases and Rents and Fixture Filing, dated as of December 21, 2005, among the Hertz Corporation and Deutsche Bank AG, New York Branch...

  • Page 227
    Exhibit Number Description 4.7.10 Second Amendment, dated as of February 15, 2007, among Hertz Equipment Rental Corporation, The Hertz Corporation, Matthews Equipment Limited, Western Shut-Down (1995) Limited, Deutsche Bank AG, New York Branch, Deutsche Bank AG, Canada Branch, and the other ...

  • Page 228
    ..., between Hertz Vehicle Financing LLC and The Bank Of New York Trust Company, N.A. (Incorporated by reference to Exhibit 4.1.7 to the Quarterly Report on Form 10-Q of Hertz Global Holdings, Inc., as filed on November 14, 2007.) Amended and Restated Series 2005-2 Supplement to the Second Amended and...

  • Page 229
    ...Vehicle Financing LLC and The Bank Of New York Trust Company, N.A. (Incorporated by reference to Exhibit 4.1.6 to the Quarterly Report on Form 10-Q of Hertz Global Holdings, Inc., as filed on November 14, 2007.) Second Amended and Restated Master Motor Vehicle Operating Lease and Servicing Agreement...

  • Page 230
    ... DB Services Tennessee, Inc. Amended and Restated Escrow Agreement, dated as of January 26, 2007, among The Hertz Corporation, Hertz Vehicle Financing LLC, Hertz General Interest LLC, Hertz Car Exchange Inc., and J.P . Morgan Chase Bank, N.A.** Amended and Restated Class A-1 Note Purchase Agreement...

  • Page 231
    ...26.1 to the Quarterly Report on Form 10-Q of Hertz Global Holdings, Inc., as filed on November 7, 2008) Series 2008-1 Note Purchase Agreement (Series 2008-1 Variable Funding Rental Car Asset Backed Notes), dated as of September 12, 2008, among Hertz Vehicle Financing LLC, the Hertz Corporation, as...

  • Page 232
    ...2008, with respect to guarantee of Hertz (U.K.) Limited to Lombard North Central Plc, dated as of December 21, 2007 (Incorporated by reference to Exhibit 4.3 to the Quarterly Report on Form 10-Q of Hertz Global Holdings, Inc., as filed on May 9, 2008) Hertz Global Holdings, Inc. Stock Incentive Plan...

  • Page 233
    ... Plan†* Form of Management Stock Option Agreement under the Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Hertz Global Holdings, Inc., as filed on August 16, 2007)†Non-Compete Agreement, dated April 10, 2000, between Hertz Europe Limited...

  • Page 234
    ... Supply and Advertising Agreement, dated as of July 5, 2005, by and between Ford Motor Company, The Hertz Corporation and Hertz General Interest LLC (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of The Hertz Corporation filed with the Securities and Exchange Commission...

  • Page 235
    ... to Exhibit 10.37 to the Quarterly Report on Form 10-Q of Hertz Global Holdings, Inc., as filed on November 7, 2008)†Hertz Global Holdings, Inc. Employee Stock Purchase Plan (incorporated by reference to Annex B of Hertz Global Holdings, Inc.'s Definitive Proxy Statement on Schedule 14A, as...

  • Page 236
    ... 1350 Certifications of Chief Executive Officer and Chief Financial Officer 21.1 23.1 31.1-31.2 32.1-32.2 †* ** Indicates management compensation plan. Incorporated by reference to the exhibit of the same number to the Current Report on Form 8-K of The Hertz Corporation, as filed on March 31...

  • Page 237
    ... of Park Ridge, and state of New Jersey, on the 3rd day of March, 2009. HERTZ GLOBAL HOLDINGS, INC. (Registrant) By: /s/ ELYSE DOUGLAS Name: Elyse Douglas Title: Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report...

  • Page 238
    Signature Title /s/ ROBERT F. END Robert F. End /s/ BARRY H. BERACHA Barry H. Beracha /s/ CARL T. BERQUIST Carl T. Berquist /s/ MICHAEL J. DURHAM Michael J. Durham /s/ HENRY C. WOLF Henry C. Wolf Director Director Director Director Director 218

  • Page 239
    ...$ 502,552 408,171 4,084 131,449 119,918 Earnings (loss) before income taxes, minority interest and fixed charges(b) ...$ (357,135) $1,468,654 $1,291,661 Interest expense (including capitalized interest) ...$ Portion of rent estimated to represent the interest factor ...Ratio of earnings to fixed...

  • Page 240
    ... and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 3, 2009 By: /s/ MARK P. FRISSORA Mark P . Frissora Chief Executive Officer

  • Page 241
    ... and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 3, 2009 By: /s/ ELYSE DOUGLAS Elyse Douglas Chief Financial Officer

  • Page 242
    ... In connection with the Annual Report of Hertz Global Holdings, Inc. (the ''Company'') on Form 10-K for the period ending December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Mark P . Frissora, Chief Executive Officer of the Company, certify...

  • Page 243
    ... 1350 In connection with the Annual Report of Hertz Global Holdings, Inc. (the ''Company'') on Form 10-K for the period ending December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Elyse Douglas, Chief Financial Officer of the Company, certify...

  • Page 244

  • Page 245
    ... ''plan,'' ''believe,'' ''seek,'' ''will,'' ''may,'' ''opportunity,'' ''target'' or other words that relate to future events, as opposed to past or current events. Forward-looking statements are based on the then-current expectations, forecasts and assumptions of our management and involve risks and...

  • Page 246
    ... related to the car rental fleet), amortization and certain other items specified in the credit agreements governing Hertz's senior credit facilities. Adjusted Pre-Tax Income Adjusted pre-tax income is calculated as income before income taxes and minority interest plus non-cash purchase accounting...

  • Page 247
    ... of revenue earning equipment based upon its revaluation relating to purchase accounting. Represents an increase in depreciation of property and equipment relating to purchase accounting. For the years ended December 31, 2008 and 2007, also includes restructuring and restructuring related charges of...

  • Page 248
    ...and accretion of revalued workers' compensation and public liability and property damage liabilities. Represents non-cash debt charges relating to the amortization of deferred debt financing costs and debt discounts. For the years ended December 31, 2008 and 2007, also includes $11.8 million and $20...

  • Page 249
    ... Non-Cash Expenses and Charges Total Total Non-cash amortization and write-off of debt costs included in car rental fleet interest ...$ Non-cash stock-based employee compensation charges ...Non-cash charges for workers' compensation ...Non-cash charges for pension . . Unrealized (gain) loss on...

  • Page 250
    ... costs Stock-based employee compensation charges ...Unrealized gain (loss) on derivatives ...Loss on ineffectiveness of interest rate swaps ...Provision for losses on doubtful accounts ...Asset writedowns ...Minority interest ...Deferred taxes on income ...Gain on sale of property and equipment...

  • Page 251
    ...Investor Relations Securities analysts, portfolio managers, representatives of financial institutions and individuals interested in receiving information about the company should contact: Leslie M. Hunziker Vice President, Investor Relations Hertz Global Holdings, Inc. 225 Brae Boulevard Park Ridge...

  • Page 252
    Hertz Global Holdings, Inc. 225 Brae Boulevard Park Ridge, NJ 07656 201-307-2000 www.hertz.com