Hertz 2008 Annual Report Download - page 106

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Total expenses increased 19.4%, and total expenses as a percentage of revenues increased from 95.5%
for the year ended December 31, 2007 to 116.2% for the year ended December 31, 2008.
Direct operating expenses increased 6.2% as a result of increases in other direct operating expenses
and fleet related expenses, partly offset by a decrease in personnel related expenses.
Other direct operating expenses increased $222.2 million, or 11.5%. The increase was primarily
related to increases in restructuring and restructuring related charges of $144.6 million, facility
expenses of $46.6 million, customer service costs of $14.6 million, commission fees of $14.0 million
and concession fees in our car rental operations of $10.7 million, including the effects of foreign
currency translation of approximately $29.9 million.
Fleet related expenses increased $113.0 million, or 10.3%. The increase was primarily related to
increases in gasoline costs of $64.2 million and vehicle damage and maintenance costs of
$57.4 million, including the effects of foreign currency translation of approximately $27.5 million.
Personnel related expenses decreased by $49.3 million, or 3.1%. The decrease was primarily
related to decreases in U.S. wages of $47.0 million, management incentive compensation costs of
$26.4 million and information technology costs of $10.1 million, partly offset by increases in
international wages and benefits of $24.4 million primarily related to the effects of foreign currency
of approximately $20.9 million and an increase in 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 8.8% from $1,695.4 million for the year ended December 31, 2007.
The increase was primarily due to a $36.6 million net increase in depreciation in certain of our car rental
operations resulting from changes in depreciation rates to reflect changes in the estimated residual
value of vehicles, lower net proceeds received in excess of book value on the disposal of used vehicles
and the effects of foreign currency translation of approximately $21.3 million. Depreciation of revenue
earning equipment in our equipment rental operations of $350.4 million for the year ended
December 31, 2008 increased 13.8% from $308.0 million for the year ended December 31, 2007. The
increase was primarily due to lower net proceeds received in excess of book value on the disposal of
used equipment, a 1.8% increase in the average acquisition cost of rental equipment operated during
the period and the effects of foreign currency translation of approximately $4.4 million, partly offset by a
$3.9 million net decrease in depreciation in certain of our equipment rental operations resulting from
changes in depreciation rates to reflect changes in the estimated residual value of equipment.
Selling, general and administrative expenses decreased 0.8%, primarily due to a decrease in advertising
and sales promotion expenses, partly offset by the effects of foreign currency translation of
approximately $76.1 million and an increase in administrative expenses. Advertising expenses
decreased $10.1 million, or 5.9%, primarily due to decreased media advertising, partly offset by the
effects of foreign currency translation of approximately $6.4 million. Sales promotion expenses
decreased $5.7 million, or 3.4%, primarily related to a decrease in sales commissions. Administrative
expenses increased $9.5 million, or 2.2%, primarily due to increases in employee relations and
purchasing costs totaling $12.4 million, consultant fees of $9.1 million and an increase in the losses on
our HIL swaptions of $6.2 million, as well as the effects of foreign currency translation of approximately
$68.8 million, partly offset by a decrease in management incentive compensation costs of $24.8 million.
Interest expense, net of interest income, decreased 3.5%, primarily due to a decrease in the weighted
average interest rate on our borrowings, a decrease in the weighted average debt outstanding and a
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